Zero Based Budgeting - ZBB

A method of budgeting in which all expenditures must be justified each new period, as opposed to only explaining the amounts requested in excess of the previous period's funding.

For example, if an organization used ZBB, each department would have to justify its funding every year. That is, funding would have a base at zero. A department would have to show why its funding efficiently helps the organization toward its goals. ZBB is especially encouraged for Government budgets because expenditures can easily run out of control if it is automatically assumed what was spent last year must be spent this year.

Supply Chain Management - SCM

The management and coordination of a product's supply chain for the purpose of increasing efficiency and profitability.

Typically, SCM will attempt to centrally control or link the production, shipment, and distribution of a product. By managing the supply chain, companies are able to cut excess fat and provide products faster. This is done by keeping tighter control of internal inventories, internal production, distribution, sales, and the inventories of the company's product purchasers.

Just In Time - JIT

An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing investory costs. This method requires that producers are able to accurately forecast demand.

A good example would be a car manufacturer that operates with very low inventory levels, relying on their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not arrive before nor after they are needed, rather they arrive just as they are needed. This inventory supply system represents a shift away from the older "just in case" strategy where producers carried large inventories in case higher demand had to be met.

Inventory
Inventory can be either raw materials, finished items already available for sale, or goods in the process of being manufactured. Inventory is recorded as an asset on a company's balance sheet.

High inventory isn't a good sign because there is a cost associated with storing the extra inventory.

Balance Sheet
A company's financial statement that reports the assets, liabilities and net worth at a specific time.

You will notice that assets = liabilities + shareholders' equity. This equation is true for all balance sheets. If the balance sheet is "consolidated" it just means that the company is a corporate group rather than a single company.

Activity Based Budgeting - ABB

A method of budgeting in which activities that incur costs in each function of an organization are established and relationships are defined between activities. This information is then used to decide how much resource should be allocated to each activity.

Basically, ABB is budgeting by activities rather than by cost elements.

Accounting
To provide a record such as funds paid or received for a person or business. Accounting summarizes and submits this information in reports and statements. The reports are intended both for the firm itself and outside parties.

Concise accounting helps management make accurate decisions.

Annual Report
A corporation's annual statement of financial operations. Annual reports include a balance sheet, income statement, auditor's report, and a description of the company's operations. This is usually a sleek, colorful, high gloss publication. Make sure to look beyond the marketing and dig into the numbers. This is the best way to discover the direction of the company. The 10-K is the version of the annual report which gets submitted to the SEC. It contains more detailed financial information.

Cook the Books

A fraudulent activity done by some corporations to falsify their financial statements.

Cookie jar accounting is a great example of cooking the books.

Cookie Jar Accounting

An accounting practice where a company uses generous reserves from good years against losses that might be incurred in bad years.

This gives the sense of "income smoothing," because earnings

Certified Public Accountant CPA

A designation by the American Institute of Certified Public Accountants for those who pass an exam and meet work-experience requirements.

For the most part the accounting industry is self-regulated. The CPA is a designation designed to help ensure professional standards for the industry are enforced. Other countries have certifications equivalent to the CPA for their region. For example, in Canada, accountants similar to the CPA are called Chartered Accountants (CA).

Generally Accepted Accounting Principles - GAAP

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and simply the accepted ways of doing accounting.

These are the rules that companies are expected to follow. If a financial statement is not prepared using GAAP principles, be very wary! That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So even when a company uses GAAP, you still need to scrutinize its financial statements

Auditor's Report
Recorded in the annual report, the auditor's report tests to see that a corporation's financial statements comply with GAAP. This is sometimes referred to as the clean opinion.

Most auditor's reports consist of three paragraphs. The first states the responsibilities of the auditor and directors. The second is the scope, stating that GAAP was used. Finally, the third paragraph gives the auditor's opinion.

Cash Flow
The amount of cash a company generates and uses during a period, calculated by adding non-cash charges (such as depreciation) to the net income after taxes. Cash flow can be used as an indication of a company's financial strength.

Cash flow is crucial to companies, having ample cash on hand will ensure that creditors, employees, and others can be paid on time.

Income Statement
A financial report that - by summarizing revenues and expenses, and showing the net profit or loss in a specified accounting period - depicts a business entitys financial performance due to operations as well as other activities rendering gains or losses. Also known as the "profit and loss statement" or "statement of revenue and expense".

The income statement is the most analyzed portion of the financial statements. It displays how well the company can assure success for both itself and its shareholders through the earnings from operations.

Voodoo Accounting
Any form of accounting that does not follow principles of conservatism. While there are many methods by which financial statements can be fudged, it always comes down to inflating revenue or hiding expenses. Examples of accounting shenanigans include the big bath, cookie jar accounting and improper recognition of revenue.

Any method that boosts profitability through accounting tricks eventually catches up with the company. As soon as it does "poof", past profits disappear like magic. (Hence the name "voodoo accounting").

Big Bath
The strategy of manipulating a company's income statement to make poor results look even worse. The big bath is often implemented in a bad year to enhance artificially next year's earnings. The big rise in earnings might result in a larger bonus for executives. New CEOs sometimes use the big bath so they can blame the company's poor performance on the previous CEO and take credit for the next year's improvements.

For example, if a CEO concludes that the minimum earnings targets can't be made in a given year, he/she will have an incentive to move earnings from the present to the future since the CEO's compensation doesn't change regardless if he/she misses the targets by a little or a lot. By shifting profits forward - by prepaying expenses, taking write-offs and/or delaying the realization of revenues - the CEO increases the chances of getting a large bonus the following year.

Earnings
The net income of a company during a specific period. Generally, but not necessarily, referring to after-tax income.

Earnings are perhaps the single most studied number in a company's financial statements. They show how profitable a company is.

Write-Off
A reduction in the value of an asset or earnings by the amount of an expense or loss.

For example, if you spend money on dinner to take out a client, that meal is a possible write-off towards your income because you presumably discussed business opportunities during the dinner. The cost of a computer might be another write-off, as long as you use it for business purposes.

Bottom Line
Slang for net income or profit.

This term comes from the structure of the income statement: profit is recorded on the bottom line of the sheet.

Net Income - NI
An individual's or company's total earnings, calculated by revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses. Often referred to as "the bottom line".

In the U.K., net income is known as "profit attributable to shareholders".

Top Line
A reference to sales or revenue.

This term refers to the fact that revenue is the top line appearing on a company's income statement

Revenue
1. The dollar amount of sales during a specific period, including discounts and returned merchandise. It is the "top line" figure from which costs are subtracted to determine net income. 2. When evaluating stocks, revenue growth serves as an indication of a company's health.

Sometimes acquisitions and divestitures will skew revenue growth figures. Also known as REVs.

Core Earnings
The revenue derived from a company's main or principal business less all associated expenses.

Compared to net income, core earnings remove all secondary activities performed by a company so that investors will be not be as easily fooled by activities unrelated to the main business. For example, a car manufacturer's main business is producing vehicles. All revenue and expenses associated with the production of cars would be included in the core earnings. Financing schemes, development of non automobile parts or engines, maintenance of pension funds, and real estate interests would be omitted from the core earnings figure.

Expenses
1. Money spent by a firm to continue its ongoing operations. 2. Money spent or costs incurred that are deductible and reduce your taxable income.

Expenses are the opposite of income. Costs that are not deductible are called "capital expenditures" and they must be depreciated or amortized instead

Capital Expenditure - CAPEX

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

This can include everything from repairing a roof to building a fire escape.

Capital Asset
A long-term asset that is not bought or sold in the regular course of business.

Examples include land, buildings, machinery, etc. Generally, these are assets you can't turn into cash quickly.

Capital
1. Financial assets or the financial value of assets such as cash. 2. The factories, machinery, and equipment owned by a business.

Capital is an extremely vague term that depends on the context for a specific definition. In general, it refers to financial resources available for use.

Capital Appreciation
A rise in the market price of an asset. The price goes up! Capital appreciation is the same as an unrealized capital gain.

Appreciation
The increase in value of an asset. Unless you are short selling, appreciation is always a good thing!

Depreciation

1. An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing reported earnings. 2. A decrease in the value of a particular currency relative to other currencies.

1. Depreciation is used in accounting to try and match the expense of an asset to the income that the asset helps the company earn. For example, if a company bought a piece of equipment for $1 million and expected it would have a useful life of 10 years, it would be depreciated over the 10 years. Every accounting year the company would expense $100,000 (assuming straight line depreciation), and this would be matched with the money that the equipment helps to make each year. 2. Examples of currency depreciation are the infamous Russian rouble crisis, where the rouble lost 25% of its value in one day.

Accretion

1. Asset growth through addition or expansion. 2. In reference to discount bonds, it describes the accumulation of value until maturity.

1. Accretion can occur through a company's internal development or by way to mergers and acquisitions. 2. Bonds at discount are sold below face value and mature at par. In the duration between the bond's issuance and maturity, no additional value is actually being accumulated within the bond but accretion occurs with the paper or implied capital gain.

Earnings per Share - EPS

The portion of a company's profit allocated to each outstanding share of common stock. Calculated as:

Companies usually use a weighted average number of shares outstanding over the reporting term.

This is the single most popular variable in dictating a share's price. EPS indicates the profitability of a company. The diluted EPS means that the outstanding shares include any convertibles or warrants outstanding. Outstanding Shares Stock currently held by investors, including restricted shares owned by the company's officers and insiders as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock. They are also known as "issued shares" or "issued and outstanding".

This number is shown on company's' balance sheets under the heading "Capital Stock" and is more important than the authorized shares or float. It is used in the calculation of many widely used metrics including "market capitalization" and "Earnings-per-Share (EPS)".

Outstanding Shares

Stock currently held by investors, including restricted shares owned by the company's officers and insiders as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock. They are also known as "issued shares" or "issued and outstanding".

This number is shown on company's' balance sheets under the heading "Capital Stock" and is more important than the authorized shares or float. It is used in the calculation of many widely used metrics including "market capitalization" and "Earnings-per-Share (EPS)".

Authorized Stock

The maximum number of shares that a corporation is legally permitted to issue under its articles of incorporation. This figure is usually listed in the capital accounts section of the balance sheet.

This number can be changed only by a vote of all the shareholders. Management will typically keep the number of authorized shares higher than those actually issued. This allows the company to sell more shares if it needs to raise additional funds. Also known as authorized shares or authorized capital stock.

Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner the right to vote at shareholder meetings and to receive dividends that the company has declared. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event a company goes bankrupt and is liquidated. Also known as shares, or equity.

A holder of stock (a shareholder) has a claim on a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1000 shares of stock outstanding, and one person owns 100 shares, that person would own and have claim to 10% of the company's assets. Stocks are the foundation of nearly every portfolio, and they have historically outperformed most all other investments over the long run.

American Depository Receipt ADR

A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas, and help to reduce administration and duty costs on each transaction that would otherwise be levied.

This is an excellent way to buy shares in a foreign company while realizing any dividends and capital gains in U.S. dollars. However, ADRs do not eliminate the currency and economic risks for the underlying shares in another country. For example, dividend payments in euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with the deposit agreement. ADRs 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 often thought to be the same. Technically, an ADS is the actual share trading, while an ADR represents a bundle of ADS's.

Forex - FX
The foreign-exchange market ("forex" or "FX") is the place where currencies are traded. The forex market is the largest, most liquid market in the world with an average traded value of exceeds $1.9 trillion per day.

There is no central marketplace for currency exchange, rather, trade is conducted overthe-counter. It is open 24 hours a day, five days a week, with currencies being traded worldwide throughout the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - spanning most time zones.

Foreign Currency Effects

The extent to which the changes in a foreign currency affects the return on a foreign investment.

Foreign investments are complicated by the currency fluctuation and conversion between countries. A high quality investment in another country may prove worthless because of a weak currency.

Repatriation

The process of converting a foreign currency into the currency of one's own country.

If you are American, converting British Pounds back to U.S. dollars is an example of

repatriation

Global Depository Receipt - GDR

1. A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international branch. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. 2. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros.

1. A GDR is very similar to an American Depository Receipt. 2. These instruments are called EDRs when private markets are attempting to obtain Euros.

International Depository Receipt - IDR

A negotiable, bank-issued certificate representing ownership of stock securities by an investor outside the country of origin.

An IDR is the non-U.S. equivalent of an American Depository Receipt (ADR).

Depository Receipt

A negotiable financial instrument issued by a bank to represents a foreign company's publicly traded securities. The depository receipt trades on a local stock exchange. Depository receipts make it easier to buy shares in foreign companies because the shares of the company don't have to leave the home state. When the depository bank is in the USA, the instruments are known as American Depository Receipts (ADR). European banks issue European depository receipts, and other banks issue global depository receipts (GDR).

Unsponsored American Depository Receipt (ADR)

An ADR that is issued without the involvement of the foreign company whose stock underlies the ADR. Shareholder benefits, voting rights, and other attached rights may not be extended to the holders of these particular securities.

These securities generally trade over-the-counter rather than on the Nasdaq or NYSE.

Voting Right

The right of a stockholder to vote on matters of corporate policy as well as on who is to compose the board of directors.

Most voting involves decisions on issuing securities, initiating stock splits, and making substantial changes in the corporation's operations.

Cumulative Voting

The procedure of voting for a company's directors, where each shareholder is entitled one vote per share times the number of directors to be elected. This is sometimes known as proportional voting.

For example, if you owned 100 shares and there are 3 directors to be elected then you would have 300 votes. This is advantageous for individual investors because they can apply all their votes towards one person.

Statutory Voting

The procedure of voting for a company's directors where each shareholder is entitled to one vote per share. This is sometimes known as straight voting.

For example, if you owned 100 shares, then you would have 100 votes.

Voting Shares

Shares that give the stockholder the right to vote on matters of corporate policy making as well as who will compose the members of the board of directors.

Different classes of shares, such as preferred stock, sometimes don't allow for voting rights.

Callable Preferred Stock

A type of preferred stock that carries the provision that the issuer has the right to call in the stock at a certain price and retire it. Also referred to as a redeemable preferred stock.

You can think of preferred stock as a security somewhere in-between stocks and bonds.

Callable Bond

A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called. Also known as a "redeemable bond".

The main cause of a call is a decline in interest rates. If interest rates have declined since a company first issued the bonds, it will likely want to refinance this debt at a lower rate of interest. The company will call its current bonds and reissue them at a lower rate of interest

Call Premium
1. The dollar amount over the par value of a callable fixed-income debt security that is given to holders when the security is called by the issuer. 2. The amount the purchaser of a call option must pay to the writer.

1. The call premium is somewhat of a penalty paid by the issuer to the bondholders for the early redemption. 2. In order to receive the rights associated with a call option, the premium must be paid to the seller.

Conversion
1. The translation of a convertible security into a predetermined number of shares. 2. A strategy used by future traders whereby they mix the purchase of option and futures contracts.

1. Conversion can only be performed if so indicated in the bond indenture or security prospectus. Furthermore, the investor/issuer must adhere to any limitations specified. 2. A conversion involves the purchase of a futures contract and the selling of a call and purchase of a put with the same strike and expiration.

Bear Spread

1. An option strategy seeking maximum profit when the price of the underlying security declines. The strategy involves the simultaneous purchase and sale of options; puts or calls can be used. A higher strike price is purchased and a lower strike price is sold. The options should have the same expiration date. 2. A trading strategy used by futures traders who intend to profit from the decline in commodity prices while limiting potentially damaging losses.

1. You make money if the underlying goes down and lose if the underlying rises in price. 2. A bear spread is created through the simultaneous purchase and sale of two of the same or closely related futures contracts. This is accomplished in the agricultural commodity markets by selling a future and offsetting it by purchasing a similar contract with an extended delivery date.

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.

For example, if an investor were bearish on the S&P 500 they would attempt to profit from a decline in the broad market index. Bearish sentiment can be applied to all types of markets including commodity markets, stock markets and the bond market. Although you often hear that the stock market is constantly in a state of flux as the bears and their optimistic counterparts, "bulls", are trying to take control, do remember that over the last 100 years or so the U.S. stock market has increased an average 11% a year. This means that every single long-term market bear has lost money.

Bear Market

A market condition in which the prices of securities are falling or are expected to fall. Although figures can vary, a downturn of 15%-20% or more in multiple indexes (Dow or S&P 500) is considered an entry into a bear market.

When you see a bear what do you do? Tuck in your arms and play dead! Fighting back can be extremely dangerous. It is quite difficult for an investor to make stellar gains during a bear market, unless he or she is a short seller.

Bear Raid

The illegal practice of attempting to push the price of a stock lower by taking large short positions and spreading unfavorable rumors about the target firm.

In a bear raid, the manipulators profit on the difference between the original stock price and the lower (manipulated) price. This was a popular practice in the early 1900s.

Bear Hug

An offer made by a company to buy the shares of another company that is too high for the board of the target firm to refuse.

If the target company says the merger is okay but they want a higher price, it is called a "teddy bear hug."

Board of Directors - B of D
A group of individuals who are elected by stockholders to establish corporate management policies and make decisions on major company issues, such as dividend policies.

These are the people who make decisions on your behalf for the company you invest in. Every public company must have a board of directors.

Dividend

Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The amount of a dividend is quoted in the amount each share receives or in other words dividends per share.

Dividends may be in the form of cash, stock, or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. High-growth companies don't offer dividends because all their profits are reinvested to help sustain higher-than-average growth.

Cum Dividend

When a buyer of a security is entitled to receive a dividend that has been declared, but not paid.

Cum dividend means "with dividend." A stock trades cum-dividend up until the exdividend date. On or after this point, the stock trades without its dividend rights

Cum Dividend

When a buyer of a security is entitled to receive a dividend that has been declared, but not paid.

Cum dividend means "with dividend." A stock trades cum-dividend up until the exdividend date. On or after this point, the stock trades without its dividend rights

Ex-Date

The date on or after which a security is traded without a previously declared dividend or distribution. After the ex-date, a stock is said to trade ex-dividend.

This is the date on which the seller, and not the buyer, of a stock will be entitled to a recently announced dividend. The ex-date is usually two business days before the record date. It is indicated in newspaper listings with an x.

Declaration Date

1. The date on which the next dividend payment is announced by the directors of a company. This statement includes the dividend's size, ex-dividend date and payment date. It is also referred to as the "announcement date". 2. The last day on which the holder of an option must indicate whether they will exercise the option. Also known as the "expiration date".

1. Once it is authorized, it is known as a declared dividend and becomes the company's legal liability to pay it. 2. The declaration date of all listed stock options in the U.S. is on the third Friday of the listed month. If there is a holiday on the Friday then the declaration date falls on the third Thursday.

Equalizing Dividend
An additional dividend paid to eligible stockholders when their divided income is reduced due to a change the board of directors makes to the dividend payment schedule.

Equalizing dividends are paid to shareholders to compensate them for any dividend income lost from the change.

Dividend Policy
The policy a company uses to decide how much it will pay out to shareholders in dividends.

Lots of research and economic logic suggests that dividend policy is irrelevant (in theory).

Dividend Payout Ratio

Calculated as:

The percentage of earnings paid to shareholders in dividends.

The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies will typically have a higher payout ratio. In the UK there is a similar ratio is known as dividend cover, calculated as earnings per share divided by dividend per share.

Ex-Dividend

The trading of shares when a declared dividend belongs to the seller rather than the buyer.

A stock trades ex-dividend on or after the ex-dividend date (ex-date).

Holder of Record

The name of the person who is the registered owner of a security.

Securities can be issued in either "registered" or "bearer" form. Registered form means the issuing firm keeps records of a security's owner and mails out payments to him/her. Bearer form means the security is traded without any record of ownership; physical possession of the security is the sole evidence of ownership. Presently, securities are mostly issued in registered form.

Bearer Form

A security not registered in the books of issuing corporation but that is payable to its bearer (the person possessing it). Securities can be issued in two forms: registered or bearer. Registered form means the issuing firm keeps records of a security's owner and mails out payments to him/her. Bearer form means the security is traded without any record of ownership, so physical possession of the security is the sole evidence of ownership. Most securities issued today are in registered form.

A bearer bond, also known as a coupon bond, has coupons that must be clipped from the security and presented in order to receive interest payments. The issuer will not remind the bearer of coupon payments. A bearer stock certificate is negotiable without endorsement and is transferred upon delivery.

Book-Entry Securities
Also referred to as "book-entry receipt."

Securities that are recorded in electronic records called book entries rather than as paper certificates.

Ownership of U.S. government book-entry securities is transferred over fedwire.

Automated Bond System - ABS

The electronic system on the NYSE that records bids and offers for inactively traded bonds until they are canceled or executed.

Because the bid and ask prices of inactively traded bonds aren't constantly changing due to demand and supply conditions, investors looking for a quote may have difficulties. By having all inactive bonds electronically monitored, the NYSE is able to keep a good inventory of bond prices, just in case an investor is interested in purchasing them.

Ask

The price a seller is willing to accept for a security, also known as the offer price.

Sometimes called "the ask," this is the price the seller is asking for.

Ask Size
The number of shares a seller is selling at a quoted ask price. If someone is willing to sell 10,000 shares @ $2 per share, then the ask size is 10,000 shares.

Bid Size
The number of shares a buyer is willing to purchase at the quoted bid price. For example, if the bid price is $20 and the bid size is 2000, that means someone is willing to purchase 2000 shares @ $20 per share.

Bid
1.An offer made by an investor, trader, or dealer to buy a security. 2. The price at which a market maker is willing to buy a security.

In other words, the bid is what someone is willing to pay for an asset.

Best Bid

The highest quoted bid for a particular stock among all those offered by competing market makers.

Simply put, this is the highest price someone is willing to pay for an asset.

Best Ask
The lowest quoted ask price for a particular stock among those offered from competing market makers.

In layman's terms, this is the lowest price for which someone is willing to sell an asset.

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.

The Nasdaq is the prime example of an operation of market makers. There are over 500 member firms that act as Nasdaq market makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for an asset.

Broker-Dealer
A person or firm in the business of buying and selling securities operating as both a broker and dealer depending on the transaction.

Technically, a broker is only an agent who executes orders on behalf of clients, whereas a dealer acts as a principal and trades for his or her own account. Because most brokerages act as both brokers and principals, the term broker-dealer is commonly used to describe them.

Agent
1. An individual or firm that places securities transactions for clients. 2. A person licensed by a state to sell insurance. 3. A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell securities to the investing public.

Essentially, this is the person who makes a transaction on behalf of their employer or client.

Analyst

A financial professional who has expertise in evaluating investments and puts together buy, sell, and hold recommendations on securities. Also known as a financial analyst or security analyst.

Analysts are typically employed by brokerage firms, investment advisors, or mutual funds. Analysts do the grunt work for brokers, preparing the research that brokers use. The most prestigious certification an analyst can receive is the Chartered Financial Analyst (CFA) designation. Analysts usually specialize in specific industries or sectors to allow for comprehensive research.

Buy
1. A recommendation to purchase a specific security. 2. To acquire an asset in exchange for currency.

Exact definitions vary by brokerage, but in general this rating is better than neutral but worse than strong buy

Buy and Hold

A passive investment strategy with which an investor buys stocks and holds them for a long period regardless of fluctuations in the market.

Conventional investing wisdom tells us that, with a long time horizon, equities render a higher return than other asset classes such as bonds. There is, however, a debate over whether a buy and hold strategy is superior to an active investing strategy. There is no easy answer to this question as both sides have valid arguments. Buy and hold, however, is advantageous as far as tax implications are concerned.

Dividend Reinvestment Plan DRIP

A plan offered by a corporation allowing investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.

A DRIP is an excellent way to increase the value of your investment. Most DRIPs allow you to buy shares at a significant discount to the current share price and commission free. Most DRIPS don't allow reinvestments much lower than $10. Sometimes this is abbreviated as "DRP."

Automatic Investment Plan

An investment program that allows you to contribute small amounts of money (as little as $20 a month) in regular intervals. Funds are automatically deducted from your checking/savings account or your paycheck, and invested in a retirement account or mutual fund.

This is one of the best ways to save money. By "paying yourself first" many people find they invest more in the long run. Their investments are treated as another part of their regular budget. It also helps to force you to pay for investments automatically, so don't forget and spend all your money on impulse.

Compounding

The ability of an asset to generate earnings that are then reinvested and generate their own earnings.

Making interest on interest, the power of compounding interest is truly magical. At 15% interest for 25 years, $10,000 would grow to $330,000!

Mutual Fund
A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed.

The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus. It has been shown in study after study that a majority of mutual funds fail to beat the market. Also, picking mutual funds purely on the basis of past performance usually does not work.

Asset Allocation Fund - AAF

A mutual fund that splits its investment assets among stocks, bonds and other investment vehicles in an attempt to provide a consistent return for the investor. Also referred to as a "diversification fund".

In other words, this is a mutual fund that diversifies your assets among different investment products such as stocks, international stocks, corporate bonds, money market securities and cash. This type of fund offers wide diversification in one fund, as opposed to investing in several funds to obtain this.

Blend Fund

A mutual fund composed of various asset classes (such as stocks, bonds and money market securities), allowing investors to diversify their holdings by owning just a single fund. Also called "hybrid funds".

The risk of blend funds is somewhere between that of growth funds and value funds. Thus, by applying both of these fund strategies, a blend fund might, for instance, invest in both high-growth Internet stocks (like growth funds) and cheaply priced automotive companies (like value funds). As such, blend funds are difficult to classify in terms of risks, and their performance can vary considerably. However, blend funds are usually less risky than stock mutual funds and somewhat more risky than bond funds or money market mutual funds.

Diversification

A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.

Diversification is possibly the greatest way to reduce the risk. This is why mutual funds are so popular.

Portfolio
The group of assets - such as stocks, bonds and mutuals - held by an investor. To reduce their risk, investors tend to hold more than just a single stock or other asset. Think of the portfolio as a pie: each piece is divided up into specific assets such as bonds, equities, etc.

Portfolio Insurance

1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures. 2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).

1. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. By short selling index futures they offset any downturns, but they also hinder any gains. 2. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by a firm.

Hedge

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations. Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).

Delta Hedging
An options strategy that aims to reduce (hedge) the risk associated with price movements in the underlying asset by offsetting long and short positions. For example, a long call position may be delta hedged by shorting the underlying stock. This strategy is based on the change in premium (price of option) caused by a change in the price of the underlying security. The change in premium for each basis-point change in price of the underlying is the delta and the relationship between the two movements is the hedge ratio.

For example, the price of a call option with a hedge ratio of 40 will rise 40% (of the stockprice move) if the price of the underlying stock decreases. Typically, options with high hedge ratios are usually more profitable to buy rather than write since the greater the percentage movement - relative to the underlying's price and the corresponding little time-value erosion - the greater the leverage. The opposite is true for options with a low hedge ratio.

Delta

The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative.

This is sometimes referred to as the hedge ratio. For example, with respect to call options, a delta of 0.7 means that for every dollar the underlying stock increases the call option will increase by $0.70. Put option deltas on the other hand will be negative because, as the underlying security increases, the value of the option will decrease. So a put option with a delta of -0.7 will decrease by $0.70 for every $1.00 the underlying increases in price. As an in-the-money call option nears expiration, it will approach a delta of 1.00, and as an in-the-money put option nears expiration, it will approach a delta of -1.00.

Derivative

A security, such as an option or futures contract, whose value depends on the performance of an underlying security or asset.

Futures contracts, forward contracts, options, and swaps are the most common types of derivatives. Derivatives are generally used by institutional investors to increase overall portfolio return or to hedge portfolio risk.

Forward Contract

A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date.

Most forward contracts don't have standards and aren't traded on exchanges. A farmer would use a forward contract to "lock-in" a price for his grain for the upcoming fall harvest.

Commodity

Any bulk good traded on an exchange or in the cash market.

Some examples include grain, oats, gold, oil, beef, silver, and natural gas.

Commodity Swap
A swap where exchanged cash flows are dependent on the price of an underlying commodity. This is usually used to hedge against the price of a commodity.

In this swap, the user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price. Then in return, the user would get payments based on the market price for the commodity involved. On the other side, a producer wishes to fix his income and would agree to pay the market price to a financial institution, in return for receiving fixed payments for the commodity. The vast majority of commodity swaps involve oil.

Currency Swap

A swap that involves the exchange of principal and interest in one currency for the same in another currency.

Currency swaps were originally done to get around the problem of exchange controls.

Currency Overlay

The outsourcing of currency risk management to a specialist firm, known as the overlay manager. This is used in international investment portfolios to separate the management of currency risk from the asset allocation and security selection decisions of the investor's money managers.

The overlay manager's hedging is "overlaid" on the portfolios created by the other money managers, whose activities continue unaffected.

Hard Currency

A currency, usually from a highly industrialized country, that is widely accepted around the world.

The U.S. Dollar and the British Pound are good examples of a hard currency.

Soft Money

1. The "one-time" funding from governments and organizations for a project or special purpose. 2. Paper currency, as opposed to gold, silver, or some other coined metal.

A good example of soft money is the campaign funding that politicians get during election years. The money received is not recurring and it is to be used explicitly for election related expenses.

Soft Currency

Another name for "weak currency." There is very little demand for this type of currency and values often fluctuate.

Currencies from most developing countries are considered to be soft currencies.

Hard Money

1. Government and organizations refer to this as funding that is repetitive, not a one time grant or gift. 2. Describes gold/silver/platinum (bullion) coins.

1. Governments and organizations prefer hard money because it is a predictable stream of funds, rather than a one shot deal.

Bullion

Gold and silver that is officially recognized as high quality (at least 99.5% pure), and is in the form of bars rather than coins.

Traditionally, bullion has been a good hedge against inflation.

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year. Most countries' central banks will try to sustain an inflation rate of between 2-3%.

Deflation

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.

Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.

Hyperinflation
Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. This is a situation where price increases are so out of control that the concept of inflation is meaningless. The most famous example of hyperinflation occurred in Germany between January 1922 and November 1923. By some estimates, the average price level increased by a factor of 20 billion!

Disinflation

A slowing of the rate at which prices increase. Typically, this occurs during a recession as sales drop and retailers are not able to pass on higher prices to customers.

Disinflation is not to be confused with deflation, where prices actually drop.

Inflationary Psychology
The relationship between inflation and individuals' behavior. For example, in times of higher than average inflation, consumers have a higher likelihood of borrowing to buy things because they are assuming goods will cost more tomorrow than they do today. Consequently, this increased buying only exacerbates inflation.

Stagnation
A period of little or no growth in the economy. Economic growth of less than 2-3% is considered stagnation. Sometimes used to describe low trading volume or inactive trading in securities.

A good example of stagnation was the U.S. economy in the 1970s.

Stagflation

A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Stagflation occurs when the economy isn't growing but prices are - not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., the effects of inflation were considerably made worse because of this stagnation.

Consumer Price Index - CPI

A measure of price changes in consumer goods and services such as gasoline, food and automobiles. Sometimes referred to as "headline inflation".

CPI is one of the frequently used statistics to identify periods of inflation or deflation. It usually has a big impact on stocks the day it is released.

Personal Consumption Expenditures - PCE

A measure of price changes in consumer goods and services. It consists of the actual and imputed expenditures of households and includes data pertaining to durables, nondurables, and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. Also referred to as "consumption."

Similar to the consumer price index (CPI), PCE is a report (actually a part of the personal income report) put out by the Bureau of Economic Analysis of the Department of Commerce. There are two broad indexes of consumer prices in the United States: the CPI and the chain price index for personal consumption expenditures (PCEPI). They are similar in many respects, but there are some important differences which can lead to large gaps between CPI and PCEPI inflation rates at times. The PCEPI uses a chain index which takes into account consumers' changing consumption due to prices, while the CPI uses a fixed basket of goods with weightings that do not change over time. The PCE is a fairly predictable report that has little impact on the markets.

Indicator

Anything used to predict future financial or economic trends.

In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. In an economic context, an indicator could be a measure such as the unemployment rate which can be used to predict future economic trends

Monetary Policy

The actions of a central bank, currency board, or other regulatory committee, that determine the size and rate of growth of the money supply, which in turn affects interest rates.

In the United States, the Federal Reserve is in charge of monetary policy.

Discount Rate
1. The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank. 2. The interest rate used in determining the present value of future cash flows.

1. This type of borrowing from the Fed is fairly limited. Institutions will often seek other means of meeting short-term liquidity needs. The Federal funds discount rate is one of two interest rates the Fed sets, the other being the overnight lending rate, or the Fed funds rate. 2. For example, let's say you expect $1,000 dollars in one year's time. To determine the present value of this $1,000 (what it is worth to you today) you would need to discount it by a particular rate of interest (often the risk-free rate but not always). Assuming a discount rate of 10%, the $1,000 in a year's time would be the equivalent of $909.09 to you today (1000/[1.00 + 0.10]).

Net Present Value - NPV

An approach used in capital budgeting where the present value of cash inflows is subtracted by the present value of cash outflows. NPV is used to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. Formula:

NPV compares the value of a dollar today versus the value of that same dollar in the future, after taking inflation and return into account. If the NPV of a prospective project is positive, then it should be accepted. However, if it is negative, then the project probably should be rejected because cash flows are negative.

Capital Budgeting

The process of determining whether or not projects such as building a new plant or investing in a long-term venture are worthwhile.

Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF), and payback period. Also known as investment appraisal.

Cost of Capital

The required return necessary to make a capital budgeting project worthwhile, such as building a new factory. Cost of capital would include the cost of debt and the cost of equity.

The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if they invested their money someplace else with similar risk.

Cost of Equity
The return that stockholders require for a company. The traditional formula is the dividend capitalization model:

Let's look at a very simple example: let's say you require a rate of return of 10% on an investment in the TSJ Sports Conglomerate. The stock is currently trading at $10 and will pay a dividend of $0.30. Through a combination of dividends and share appreciation you require a $1.00 return on your $10.00 investment. Therefore the stock will have to appreciate by $0.70, which, combined with the $0.30 from dividends, gives your your 10% cost of equity. The capital asset pricing model (CAPM) is another approach to determining cost of equity.

Capital Asset Pricing Model CAPM

A model describing the relationship between risk and expected return that is used in the pricing of risky securities.

The 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 the required return then the investment should not be undertaken. The security market line (SML) plots the results of the CAPM. There are books and research papers written entirely on the CAPM and how to determine the risk premium for various securities.

Capital Market Line - CML

A line used in the Capital Asset Pricing Model to illustrate the rates of return for efficient portfolios depending on the risk free rate of return and the level of risk (beta) for a particular portfolio.

The CML is derived by drawing a tangent line on the intercept point on the efficient frontier where the expected return equals the risk-free rate of return. The CML is considered to be superior to the efficient frontier since it takes into account the inclusion of a risk free asset in the portfolio. The capital asset pricing model (CAPM) demonstrates that the market portfolio is essentially the efficient frontier. This is achieved visually through the security market line (SML).

Standard Deviation
1. A measure of the dispersion of a set of data from its mean. The more spread apart the data is, the higher the deviation. 2. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility (risk).

A volatile stock would have a high standard deviation. In mutual funds, the standard deviation tells us how much the return on the fund is deviating from the expected normal returns. Standard deviation can also be calculated as the square root of the variance.

Variance

A measure of the dispersion of a set of data points around their mean value. It is a mathematical expectation of the average squared deviations from the mean.

Variance measures the variability (volatility) from an average. Volatility is a measure of risk, so this statistic can help determine the risk an investor might take on when purchasing a specific security.

ZZZZ Best

A company owned by Barry Minkow in the 1980s. Through such means as forgery and theft, Minkow appeared to be building a multimillion dollar corporation. ZZZZ Best went public in December of 1986, eventually reaching a market capitalization of over $200 million (U.S. Dollars).

The amazing thing is that Barry Minkow was only a teenager at the time! He was eventually sentenced to 25 years in prison.

Caveat Emptor
Another way to say, "let the buyer beware." In other words, consumers need to know their rights and be vigilant in avoiding scams.

Zombies

Companies that continue to operate even though they are insolvent. Also known as living dead.

It's advisable to avoid investing in zombies at all costs; their life expectancies are highly unpredictable.

Insolvency
When a company can no longer meet its debt obligations with another firm or institution. An insolvency proceeding is when the company that is on "the hook" for the debt attempts to get some of their money back through liquidation.

Bankruptcy

The state of a person or firm unable to repay debts.

If the bankrupt entity is a firm, the ownership of the firm's assets is transferred from the stockholders to the bondholders. Shareholders are the last people to get paid if a company goes bankrupt. Secure creditors always get first grabs at the proceeds from liquidation.

Bankruptcy

The state of a person or firm unable to repay debts.

If the bankrupt entity is a firm, the ownership of the firm's assets is transferred from the stockholders to the bondholders. Shareholders are the last people to get paid if a company goes bankrupt. Secure creditors always get first grabs at the proceeds from liquidation. Bankruptcy The state of a person or firm unable to repay debts.

If the bankrupt entity is a firm, the ownership of the firm's assets is transferred from the stockholders to the bondholders. Shareholders are the last people to get paid if a company goes bankrupt. Secure creditors always get first grabs at the proceeds from liquidation.

Lady Macbeth Strategy

A corporate-takeover strategy with which a third party poses as a white knight to gain trust, but then turns around and joins with unfriendly bidders.

Lady Macbeth, one of Shakespeare's most frightful and ambitious characters, devises a cunning plan for her husband, the Scottish general, to kill Duncan, the King of Scotland. The success of Lady Macbeth's scheme lies in her deceptive ability to appear noble and virtuous, and thereby secure Duncan's trust in the Macbeths' false loyalty.

Hostile Takeover

A takeover attempt that is strongly resisted by the target firm.

Hostile takeovers are usually bad news, as the employee moral of the target firm can quickly turn to animosity against the acquiring firm.

Takeover

A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.

A welcome takeover is usually referring to a favorable and friendly takeover. Friendly takeovers generally go smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can get downright nasty!

Acquisition
When one company purchases a majority interest in the acquired. Acquisitions can either be friendly or unfriendly. Friendly acquisitions occur when the target firm agrees to be acquired, unfriendly acquisitions don't have the same agreement from the target firm.

Merger
The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

Basically, when two companies become one. This decision is usually mutual between both firms.

De-merger

A corporate strategy to sell off subsidiaries or divisions of a company.

For example, in 2001 British Telecom did a de-merger of its mobile phone arm, BT Wireless, in an attempt to boost the performance of its stock. British Telecom took this action because it was struggling under high debt levels from the wireless venture.

Reverse Triangular Merger

When the subsidiary of the acquiring corporation merges with the target firm. In this case, the subsidiary's equity merges with the target firm's stock. As a result of the merger, the target would become a wholly-owned subsidiary of the acquirer and shareholders of the target would get shares of the acquirer.

This form of acquisition is often used for regulatory reasons.

Tracking Stock
A stock issued by a parent company in order to create a financial vehicle that tracks the performance of a particular division or subsidiary.

When a parent company issues a tracking stock, all revenues and expenses of the applicable division are separated from the parent company's financial statements and bound to the tracking stock. Often this is done to separate a high-growth division from large losses shown by the financial statements of the parent company. The parent company and its shareholders, however, still control operations of the subsidiary.

Carve-out (Equity Carve-Out)

1. Sometimes known as a partial spinoff, a carve out occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering. 2. Where an established brick-and-mortar company hooks up with venture investors and a new management team to launch an Internet spinoff.

In most cases the parent company will spinoff the remaining interests to existing shareholders at a later date when the stock price is much higher. Also known as a "carveout" or an "equity carve out."

Split-Up
Exchanging the stock of two or more subsidiary companies for all of the parent company's stock, followed by the liquidation of the parent company.

A split-up is an effective way to break a company into two or more independent companies.

Consolidated Financial Statements

The combined financial statements of a parent company and its subsidiaries. Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge the overall health of an entire group of companies as opposed to one company's stand alone position.

Parent Company
A company that controls other companies by owning an influential amount of voting stock. Companies can become parent companies by many different means. The two most common ways are through (1) acquisitions of smaller companies and (2) the spin-off or creation of subsidiaries.

Subsidiary

A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company.

As long as the parent company has more than 50% of the voting stock in the subsidiary, it has control. In the case of a foreign subsidiary, the company the subsidiary is incorporated under must adhere to the laws of the country in which it operates, although the parent company still carries the foreign subsidiaries financials on their books (consolidated financial statements).

Wholly Owned Subsidiary

A subsidiary whose parent company owns 100% of its common stock. In other words, the parent company owns the company outright and there are no minority owners.

Initial Public Offering - IPO

Also referred to as a "Public Offering."

The first sale of stock by a private company to the public. IPOs are often smaller, younger companies seeking capital to expand their business.

IPOs can be a risky investment, for the individual investor it is tough to predict what the stock will do on its initial day of trading. Also known as going public.

Underwriting

1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies.

The word "underwriter" is said to have came from the practice of having each risk taker write his name under the total amount of risk that he was willing to accept at a specified premium. In a way, this is still true today, as new issues are usually brought to market by an underwriting syndicate in which each firm takes the responsibility (and risk) of selling their specific allotment.

Syndicate
A group of bankers, insurers, etcetera, who work together on a large project. A syndicate only works together temporarily. They are commonly used for large loans or underwritings to reduce the risk that each individual firm must take on.

Spread
1. The difference between the bid and the ask prices of a security or asset. 2. An options position established by purchasing one option and selling another option of the same class, but of a different series.

1) The spread for an asset is influenced by a number of factors, such as: a) Supply or "float" (the total number of shares outstanding available to trade). b) Demand or interest in a stock. c) Total trading activity in the stock. 2) For a stock option, the spread would be the difference between the strike price and the market value.

Market Value
1. The current quoted price at which investors buy or sell a share of common stock or a bond at a given time. 2. The market capitalization plus the market value of debt. Sometimes referred to as "total market value".

1. In the context of securities, market value is often different from book value because the market takes into account future growth potential. Most investors who use fundamental analysis to picks stocks look at a company's market value and then determine whether or not the market value is adequate or if it's undervalued in comparison to it's book value, net assets or some other measure.

Quote
The last price at which a security or commodity traded at, meaning the most recent price at which a buyer and seller agreed on a price and transacted some amount of the asset. This is also referred to as an asset's "quoted price".

Quotes such as stock and bond prices change constantly throughout the trading day as new transactions occur one after another in a constant stream of trades. When you look up a stock quote for a given company, you are looking at the most recent price at which a trade was successfully executed at for that particular security.

Blue Chip

A security from a well-established and financially-sound company that has demonstrated its ability to pay dividends in both good and bad times.

These stocks are usually less risky than other stocks. The stock price of a blue chip usually closely follows the S&P 500. The name "blue chip" came about because in the game of poker the blue chips were traditionally the most expensive ones. Blue Chip A security from a well-established and financially-sound company that has demonstrated its ability to pay dividends in both good and bad times.

These stocks are usually less risky than other stocks. The stock price of a blue chip usually closely follows the S&P 500. The name "blue chip" came about because in the game of poker the blue chips were traditionally the most expensive ones.

Shareholder

Any person, company, or other institution that owns at least 1 share in a company. A shareholder may also be referred to as a stockholder.

Shareholders are the owners of a company. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly.

Corporation

A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts.

A corporation is created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock. Shareholders elect a board of directors (generally receiving one vote per share) who appoint and oversee management of the corporation. Although a corporation does not necessarily have to be for profit, the vast majority of corporations are setup with the goal of providing a return for its shareholders. When you purchase stock you are becoming part owner in a corporation. Corporations are often called "C Corporations".

Globalization

The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe and thereby increase the interconnectiveness of different markets.

In general, globalization is seen as making the world one community. The advantages and and disadvantages of globalization has been debated and scrutinized heavily in recent years. Proponents say that it helps Second and Third World nations catch up much faster through increased employment and technological advances. Opponents of globalization say that it reduces national sovereignty and allows rich nations to ship domestic jobs overseas where labor is much cheaper.

General Agreement on Tariffs and Trade - GATT

An agreement signed in 1947, whose purpose was to promote global trade between members through a reduction in tariffs.

The formation of GATT--and its subsequent amendments up to 1994--laid the framework for the creation of the WTO in 1995.

Index

A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is essentially an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage changes is more important that the actually numeric value. For example, knowing that a stock exchange is at, say, 5,000 doesn't tell you much. However, knowing that the index has risen 30% over the last year to 5,000 gives a much better demonstration of performance. The plural of index can be spelled either indexes or indices.

The Standard & Poor's 500 is one of the world's best known indexes, and is the most commonly used benchmark for the stock market. Technically, you can't actually invest in an index. Rather, you invest in a security such as an index fund or ETF that attempts to track an index as closely as possible.

Futures

A financial contract that obligates the buyer (seller) to purchase (sell and deliver) financial instruments or physical commodities at a future date, unless the holder's position is closed prior to expiration.

Futures are often used by mutual funds and large institutions to hedge their positions when the markets are rocky, preventing large losses in value. The primary difference between options and futures is that options provide the holder the right to buy or sell the underlying asset at expiration, while futures contracts holders are obligated to fulfill the terms of their contract.

Arbitrage
The simultaneous purchase and selling of an asset in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces. Also known as a "riskless profit".

Here's an example of arbitrage: Say a domestic stock trades also on a foreign exchange in another country, where it hasn't adjusted for the constantly changing exchange rate. A trader purchases the stock where it is undervalued and short sells the stock where it is overvalued, thus profiting from the difference. Arbitrage is recommended for experienced investors only.

Market Value Added - MVA

The difference between the market value of a company and the capital contributed by investors (both bondholders and shareholders). In other words, it is the sum of all capital claims held against the company plus the market value of debt and equity.

The higher the MVA, the better. A high MVA indicates the company has created substantial wealth for the shareholders. A negative MVA means that the value of the actions and investments of management is less than the value of the capital contributed to the company by the capital markets, meaning wealth or value has been destroyed.

Economic Value Added - EVA

A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".) The formula for calculating EVA is as follows: = Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

This measure was devised by Stern Stewart & Co. Economic value added attempts to capture the true economic profit of a company.

Market Capitalization

The total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap.

Market Cap is a measure of a company's size. Brokerages vary on their exact definitions, but the current approximate classes of market capitalization are: Mega Cap: Market cap of $200 billion and greater Big/Large Cap: $10-$200 billion Mid Cap: $2 billion to $10 billion Small Cap: $300 million to $2 billion Micro Cap: $50 million to $300 million Nano Cap: Under $50 million In some parts of the world this can be spelt as market capitalisation.

Common Stock
A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation common shareholders have rights to a company's assets only after bond holders, preferred shareholders, and other debt holders have been paid in full.

If the company goes bankrupt the common stockholders will not receive their money until the creditors and preferred shareholders have received their respective share of the leftover assets. This makes common stock riskier than debt or preferred shares. The upside to common shares is that they usually outperform bonds and preferred shares in the long run.

Leveraged Buyout - LBO

A strategy involving the acquisition of another company using borrowed money (bonds or loans). The acquiring company uses its own assets as collateral for the loan in hopes that the future cash flows will cover the loan payments.

There is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds are usually 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. Quite often, management will team up with a venture capitalist to acquire the business because it's a complicated process that requires significant capital.

Venture Capitalist
An investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding.

Venture capitalists usually expect higher returns for the additional risks taken.

Angel Investor

A financial backer providing venture capital funds for small start-ups or entrepreneurs.

Typically, angel investors are friends or family members. Another good reason to mark their birthdays on your calendar!

Seed Capital

The initial equity capital used to start a new venture or business.

This initial amount is usually quite small because the venture is still in the idea or conceptual stage. Also, there's a high risk that the venture will fail.

Operating Leverage
A measurement of the degree to which a firm or project relies on fixed rather than variable costs.

The higher the degree of operating leverage, the greater the potential danger from forecasting risk. That is, if a relatively small error is made in forecasting sales, it can be magnified into large errors in cash flow projections. If the majority of costs for a company or project are fixed, then the costs will remain high while sales are dropping.

Variable Cost

A cost that changes in proportion to a change in a company's activity or business.

A good example of variable cost is the fuel for an airline. This cost changes with the number of flights and how long the trips are.

Sunk Cost

A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost."

A worn-out piece of equipment bought several years ago is a sunk cost because the cost of buying it cannot be reversed.

Outlay Cost
Any concrete costs that can be identified in the past, present, or future. These costs do not include forgone profits or benefits. For corporations, outlay costs for new projects will include start-up, production, maintenance, and extraneous costs. Also referred to as explicit costs.

Opportunity Cost

1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. 2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a riskfree government bond yielding 6%. In this situation, your opportunity costs are 4% (6%2%).

1. The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages. Here's another example: if a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.). In both cases, a choice between two options must be made. It would be an easy decision if you knew the end outcome; however, the risk that you could achieve greater "benefits" (be they monetary or otherwise) with another option is the opportunity cost.

Implicit Cost

A cost that is represented by lost opportunity in the usage of a company's own resources, excluding cash.

These are intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company rather than working on expansion.

Explicit Cost

A cost that is represented by lost opportunity in actual cash payments.

These are tangible costs which can be easily accounted for. For example: wages, rent and materials

Greenshoe Option

An option that allows the underwriting of an IPO to sell additional shares to the public if the demand is high.

The name comes from the fact that the Green Shoe Company was the first to issue this type of option.

Eating Stock
Purchasing stock not because you desire it but because you are forced to do so. Underwriters who can't find enough investors to purchase IPO shares are sometimes forced to eat stock. The underwriter is forced to purchase the shares that could not be sold to the public.

Red Herring

A preliminary registration statement that must be filed with the SEC describing a new issue of stock (IPO) and the prospects of the issuing company.

There is no price or issue size stated in the red herring, and it is sometimes updated several times before being called the final prospectus. It is known as a red herring because it contains a passage in red that states the company is not attempting to sell their shares before the registration is approved by the SEC.

Prospectus

1. A formal legal document describing details of a corporation. The prospectus is generally created for a proposed offering (usually an IPO), but they can still be obtained from existing businesses as well. The prospectus includes company facts that are vitally important to potential investors. 2. In this case of mutual funds, a prospectus describes the fund's objectives, history, manager background, and financial statements.

The prospectus is a document that makes investors aware of the risks of an investment.

Sandbag

A stalling tactic used by management to deter a company that is showing interest in taking them over.

The company stalls in hopes that a more favorable company will take them over.

Lobster Trap

A strategy used by a target firm to prevent a hostile takeover. In a lobster trap, the company passes a provision preventing anyone with more than 10% ownership from converting convertible securities into voting stock.

Examples of convertible securities include convertible bonds, convertible preferred stock, and warrants.

Poison Pill

A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. 2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.

1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the competitors. As a result, the competitor's takeover attempt is made more difficult and expensive. 2. An example of a flip-over is when shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger. This is similar to the macaroni defense, except it uses equity rather than bonds.

Suicide Pill
A defensive strategy by which a target company engages in an activity that might actually ruin the company rather than prevent the hostile takeover. Also known as the "Jonestown Defense."

This is an extreme version of the poison pill.

Whitemail
A strategy that a takeover target uses to try and thwart an undesired takeover attempt. The target firm issues a large amount of shares at below-market prices, which the acquiring company will then have to purchase if it wishes to complete the takeover.

If the whitemail strategy is successful in discouraging the takeover, then the company can either buy back the issued shares or leave them outstanding.

Bankmail
An agreement made between a company planning a takeover and a bank, which prevents the bank from financing any other potential acquirer's bid.

Bankmail agreements are meant to stop other potential acquirers from receiving similar financing arrangements.

Greenmail

A situation in which a large block of stock is held by an unfriendly company. This forces the target company to repurchase the stock at a substantial premium to prevent a takeover. It is also known as a "Bon Voyage Bonus" or a "Goodbye Kiss".

Not unlike blackmail, this is a dirty tactic, but it's very effective.

Shark Repellent

Any number of measures taken by a corporation to discourage an unwanted takeover attempt.

Examples of shark repellent include Golden Parachute contracts with executives, a defensive merger with another company, a super-majority provision, and so on.

Pac Man
A form of defense used in a hostile takeover situation. The target firm turns around and tries to take over the company that has made the hostile bid.

Just think - all those years of playing Atari games could save a company someday.

Macaroni Defense

An approach taken by a company that does not want to be taken over. The company issues a large number of bonds with the condition they must be redeemed at a high price if the company is taken over.

Why is it called Macaroni Defense? Because if a company is in danger, the redemption price of the bonds expands like Macaroni in a pot!

Sleeping Beauty
A company that is prime for takeover but has not been approached by an acquiring company.

A company may be considered a sleeping beauty because it has large cash reserves, undervalued real estate, or huge potential.

Scorched Earth Policy

An anti-takeover strategy that a firm undertakes by liquidating its valuable and desired assets and assuming liabilities in an effort to make the proposed takeover unattractive to the acquiring firm.

In extreme cases, this strategy might end up being a 'suicide pill'. The scorched earth policy is actually a classic military strategy: generals would instruct troops to burn any land/crops/trees as they retreated so there would be no supplies to refresh the advancing army.

Saturday Night Special

A slang term used to refer to a surprise takeover attempt. The term alludes to the fact that many takeover bids are announced over the weekend in order to avoid too much publicity.

Blank Check Preferred Stock

A method companies use to simplify the process of creating new classes of preferred stock to raise additional funds from sophisticated investors without obtaining separate shareholder approval.

To do this a company must amend its articles of incorporation to create a class of unissued shares of preferred stock whose terms and conditions may be expressly determined by the company's board of directors. This kind of stock can also be created by a public company as a takeover defense in the event of a hostile bid for the company (poison pill).

Articles of Incorporation
A set of documents filed with a government body for the purpose of legally documenting the creation of a corporation. Also referred to as the "corporate charter."

Articles of incorporation typically contain pertinent information such as the firm's address, profile, distribution of corporate powers, and the amount/type of stock to be issued. Some states will offer more favorable environments and thus attract a greater proportion of firms seeking incorporation.

Participating Preferred Stock

A type of preferred stock that, under certain conditions, gives holders the right to receive earnings payouts over and above the specified dividend rate.

Participating preferred stock is rarely issued, but one way in which it is used is as a poison pill. In this case, current shareholders are issued stock that gives them the right to buy more shares at a bargain price in the event of an unwanted takeover bid.

Unbundling

The process of taking over a large company with several different lines of business, and then, while retaining the core business, selling off the subsidiaries to help fund the takeover.

In other words, unbundling occurs when a company purchases another for its most valuable divisions (its crown jewels) with little desire for the other aspects of the business.

Crown Jewels
The most valuable unit of a corporation because of profitability, asset value, future prospects, etc.

The crown jewels are often the target of takeover attempts.

Yard

Slang for one billion units in currency.

The term also refers to "milliard," which is a European term for 1,000 million (a billion). If a person wanted to buy one billion U.S. dollars, he or she might say, "I would like to buy a yard of U.S. dollars." By using the word "yard" in place of "billion," the person ensures that the counter-party will not misunderstand billion for "million" or "trillion."

Woody
Slang to describe when the market has a strong and quick upward movement. For example, you'll hear "the market has a woody," when the market is performing well... seriously, we don't make this stuff up.

Winner's Curse

A financial theory that the winning participants within an auction will typically pay an overvalued price for the winning item.

The problem of the winner's curse occurs during any auction process when bidders must estimate the true or final value of a desired good. Generally, bidders are considered to be risk averse and the average bid is expected to be lower than the final value. However, due to estimation errors, the winning bid is usually much higher because the highest overestimation made by any of the bidders will win the auction. The significance of this theory is most evident in IPO pricing schemes. Because this observation contradicts the common assumption of rational investors, it allows underwriters to price new issues differently.

Window Dressing

A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders.

Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings. Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for. Window dressing may make a fund appear more attractive, but you can't hide poor performance for long.

Fund Manager

The person responsible for investing a mutual fund's assets, implementing its investment strategy, and managing the day-to-day portfolio trading.

The whole point of investing in a mutual fund is to leave stock picking to professionals. Therefore, the fund manager is one of the most important factors to consider when looking at a mutual fund. Researching a fund manager's past performance in the last 5+ years will tell you a lot; have they had consistent performance, or have they bounced around from fund to fund? Do they have a history of underperforming?

Portfolio Manager
The person responsible for investing a mutual fund's assets, implementing its investment strategy, and managing the day-to-day portfolio trading.

The portfolio manager is one of the most important factors to consider when looking at a mutual fund.

Gunslinger
A high-strung portfolio manager who, looking for high returns, invests in very high-risk stock.

Stay away from these guys, or they could end up shooting you in the foot!

Hedge Fund

An aggressively managed fund portfolio taking positions in both safe and speculative opportunities.

Most hedge funds are limited to a maximum of 100 investors. And for the most part, hedge funds (unlike regular mutual funds) are unregulated because it is assumed that the people investing in them are very sophisticated and wealthy investors. Don't be fooled by the name: hedging is actually the practice of attempting to reduce risk, and the main goal of a hedge fund is to get a maximum rate of return, using strategies involving options, short selling, and leverage. On the other hand, because they often use futures, swaps, and arbitrage strategies, you could argue that hedge funds diversify away some of the investor risk of the stock market.

Winding Up
A process that entails selling all the assets of a business entity, paying off creditors, distributing any remaining assets to the principals, and then dissolving the business.

Essentially, "winding up" is just another term for liquidation.

Wild Card Play

Having the right to deliver on a futures contract at the last closing price, even though the contract is no longer trading.

This is similar to the wild card option

Wild Card Option

An option associated with treasury bond or treasury note futures contracts that permits the short position to delay the delivery of the underlying.

This provision allows the short futures contract holder to announce his or her intention to deliver the underlying securities on any notice day before a specified time, which is later than the regular trading hours, in which invoice prices are normally fixed. The security that is delivered is usually the cheapest to deliver on that specific day.

Widow-and-Orphan Stock
Relatively low-risk stocks from well-known firms that pay high dividends. Widow-and-Orphan stocks are generally chosen during bear markets and ignored during bull markets. This is because these companies are perceived to be able to maintain their dividend payment schedule through difficult financial times.

White Elephant
Any investment that nobody wants because it is unprofitable. The term 'White Elephant' is derived from Thailand, where an Albino (white) elephant was given to unfavored people by the ruler. Because these elephants were sacred and not permitted to work, it was a burden to the owner as it would eat up all the owner's money until he/she became destitute.

Falling Knife

A stock whose price has fallen significantly in a short period of time.

Don't try to catch a falling knife or you'll end up getting hurt!

Whistle Blower

An employee who has inside knowledge of illegal activities occurring within his or her organization and reports these to the public.

Although whistle blowers are protected under federal law from employer retaliation, there have been cases where punishment for whistle blowing has occurred.

Insider Trading
The buying or selling of a security by someone who has access to material, nonpublic information about the security.

Insider trading can be illegal or legal depending on when the insider makes the trade: it is illegal when the material information is still nonpublic--trading while having special knowledge is unfair to other investors who don't have access to such knowledge. Illegal insider trading therefore includes tipping others when you have any sort of nonpublic information. Directors are not the only ones who have the potential to be convicted of insider trading. People such as brokers and even family members can be guilty. Insider trading is legal once the material information has been made public, at which time the insider has no direct advantage over other investors. The SEC, however, still requires all insiders to report all their transactions. So, as insiders have an insight into the workings of their company, it may be wise for an investor to look at these reports to see how insiders are legally trading their stock.

Open-Market Transaction
An order placed by an insider, after all appropriate documentation has been filed, to buy or sell restricted securities openly on an exchange.

This is simply an order placed by an insider to buy or sell shares according to the rules and regulations set out by the SEC. The importance of an open market order is that the insider is voluntarily buying or selling shares at or close to the market price.

Black Friday

A day of stock market catastrophe. Originally, September 24th, 1869 was termed Black Friday. The crash was sparked by gold speculators including Jay Gould and James Fist attempting to corner the gold market. Their attempt failed and the gold market collapsed, causing the market to tank.

The term "black" has been used to describe other disastrous days in financial markets. For example, Tuesday, October 29th, 1929, a day the market fell precipitously, has been coined Black Tuesday, signaling the start of the Great Depression. Additionally, the largest one-day drop in stock market history occurred on Black Monday, October 19th, 1987, when the DJIA plummeted more than 22%.

Black Monday
The most notorious day in financial history (October 19, 1987). The DJIA fell 508 points, almost 22%.

Since Black Monday, there have been multiple mechanisms built into the market to prevent panic selling such as trading curbs and circuit breakers

Financial Terms

1)IPO glossary Allotment Allotment is the distribution of shares to the public during an offer. The normal rule of allocation is to allocate the shares in the event of oversubscription on a proportionate basis. This however excludes the firm allotment portion. Auditor An auditor is an individual who conducts an examination and verification of a company's financial and accounting records and supporting documents.

Top 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. Top 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. Top 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. Top 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. Top 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 (SEBIs 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. Top 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. Top 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 aftermarket. Top 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. Top 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 Top 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. Top 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. Top Lead Managers The lead manager is appointed by the company which desires to raise capital from the market. The lead manager performs the following activities: Designing the instrument Pricing the issue Timing the issue Marketing Preparing the offer document Listing Allotment/Refund Merchant Bankers Merchant Bankers facilitate the issue process. Role of Merchant Banker: Directing and co-ordinating the activities with under writers, registrars and bankers. Assuring the investors of the soundness of the issue Promising companies/entrepreneurs/promoters to tap resources, Complying with SEBI guidelines.

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. Top Prospectus The official offer document included in the registration statement filed with SEBI in conjunction with a public offer. The prospectus contains information about the offer of securities and should be given to the original purchasers no later than the written confirmation of their purchase. Registration Statement A document that must be filed with SEBI before securities can be sold to the public. It describes the business of the issuer of the securities, how the proceeds of the offering will be used, audited financial statements, some background on the principal executives, and other pertinent data. Top External Risk Factors The external factors that influence the companys 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. Internal Risk Factors The internal factors that influence the companys 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 companys internal operations and management which are within the control of the company. Management Perception of Risk Factors The managements 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. Top 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. Top 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.

Top Venture Capital An important source of financing used to fund start-up companies that do not have access to capital markets. Venture Capital typically entails significant investment risk but offers the potential for above-average future returns. Top / Back IPO Home / Karvy Home

2) 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.
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Annualized Return The return a fund would have generated over a year on a compounded basis. This method is the best indicator to measure the performance of a fund.
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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.
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Asset Allocation It is the process of allocating the overall corpus to different assets like equities, bonds, real estate, derivatives etc.
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Credit Risk It is the risk that the issuer of a fixed income security may default on payment of interest and repayment of principal. It is also referred to as default risk.
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Debt fund A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds etc. These funds are generally preferred by investors wanting steady income and not willing to take higher risks.
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Dematerialization The process of converting the physical /paper shares in Electronic form. SEBI had made it compulsory to get the shares of some companies dematerialized. In this process the investor opens an account with a Depository Participant (DP) and the number of shares the investor holds is shown in this account.
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Depository Participant An authorized body who is involved in dematerialization of shares and maintaining of the investors accounts.
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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 ones 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.
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Efficient Portfolio A portfolio which ensures maximum return for a given level of risk or a minimum level of risk for an expected return.
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Factor Fund It is a mutual fund that has a core philosophy of investing in a particular factor or style in the market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds, Low P/E funds, Growth funds etc.
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Financial Pyramid An investment plan in the shape of a pyramid structure where the safest investments are at the base and the riskiest investments at the peak.
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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.
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Equity/Growth fund A fund that invest primarily in equities and has capital appreciation as its investment objective
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Fund Manager A professional manager appointed by the Asset Management Company to invest money in accordance with the objects of the scheme.
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Income Fund A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors who wants regular income. It pays dividends to the investors out of its earnings.
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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.
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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.
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Interim Dividend An advance installment of the dividend finally declared. More often one, but sometimes two such payments are made. The final dividend is often at least equal, and sometimes more. The interim dividend is a fair indication of a company's profitability, during the working year.
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Liquid Fund A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).
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Liquidity Risk It is the risk in a fixed income security as well as in equities that these securities may not be sold in the market at close to their value. Liquidity risk is characteristic of narrow markets like India.
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Market Capitalization Represents the market value of the company. It is a product of the current market price and the number of shares outstanding.
TOP

Market Instrument A fully negotiable instrument for short-term debt.

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Market Lot A fixed minimum number of shares, in which or in multiples of which, shares are bought and sold on the stock exchange. The advent of dematerialization of shares will do away the significance of market lot.
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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.
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No-Load Fund Shares of an open-ended fund, which can be bought directly from the fund without any sales charge or brokerage. US-64 is an example of a no-load fund.
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Offer Price 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.
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Pari Passu Ranking equally. After conversion of debentures into shares, the new shares created carry the same rights as the existing shares of the company to receive dividends, rights and bonus shares, and to participate in the company's profit and loss.
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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.
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Rating Evaluation of credit risk in fixed income securities. This evaluation is specific to the security rated and is done in India by Crisil, Icra, Care and Duff & Phelps.
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Record Date It is the date announced by the company/mutual fund, which is a cut-off date for corporate benefits like dividends, rights, bonus etc. Only investors whose names appear in the companys registers on that date are eligible for the said benefits.
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Reinvestment Plan It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund.
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Reinvestment Risk It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate. This problem becomes pronounced in a falling interest rate scenario.
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Sector fund Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For e.g. Kothari Pioneer Infotech Fund. Sector funds are generally considered to be risky in nature.
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Securities Financial documents which give the owner specific rights of ownership; these include: equity and preference shares, debentures, treasury bills, government bonds, units of mutual fund, and any other marketable documents.
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Sinking Fund Money regularly set aside in a separate fund and invested by a company for the repayment of debt instruments (fixed deposits, debentures, other loans) or the redemption of preference shares, or for replacement of assets.
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Sponsor Sponsor is the parent organization that contributes the initial capital of the asset management company (AMC). e.g. Kotak Mahindra Finance is the sponsor for Kotak Mahindra Mutual Fund.
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Switching

Transferring from one scheme to another in a group of schemes operated by a Mutual Fund, where the rules so permit. A switching fee may or may not be charged.
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SWOT Analysis 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.
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Systematic Risk This is the market risk that a security faces and is essentially non-diversifiable in nature. This risk is caused by macro level factors like changes in inflation, interest rates, budget announcements etc.
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Tax saving fund Such funds allow the income tax payees to claim a rebate under the Income Tax Act.
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Technical Analysis A method of prediction of share price movements based on a study of price graphs or charts on the assumption that share price trends are repetitive. Since investor psychology follows a certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he only studies price and volume behavior.
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Top-Down Investment An approach to stock selection which evaluates the prospects of the economy first, then the prospects of the industry and then finally the prospects of a particular company to take an investment decision. It is the opposite of a bottom-up approach to investing.
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Transfer Agents Professional firms, now mostly computerized, which maintain the records of shareholders of their client companies.
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Treasury Bills These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India for short-term loans, 91 days to 364 days.
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Trustee The trustee is the legal owner of the mutual fund. The trustee takes into custody or under its control all the capital and property of every scheme of the mutual fund and hold it in trust for the

unitholders of the scheme.

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Unsystematic Risk This is the proportion of risk that is specific to a particular company. This diversifiable risk could arise due to company specific factors like operational factors, financial factors, labor unrest etc.
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Value Investment Investment in shares whose intrinsic value is above their market price. Fundamental analysts often make recommendations of value investment, as they can spot undervalued shares.
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Vulture Fund It is a fund that takes over the non-performing assets of bank or financial institution at a discount and issues pass-through units to the investors.
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Venture Capital Fund A limited company formed to provide venture or risk capital to new industries.
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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.
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3) Stock market glossary

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. Arbitration Settlement of claims differences or disputes between one member and another and between a member and his clients, authorised clerks, sub-brokers etc., through appointed arbitrators. Bearer Security This is a bond or a share for which there is no other proof of ownership than the physical possession of the security. No official record or register of ownership is kept, the owner is the "bearer" of the share or bond certificate. This means that these certificates are easily traded without formality. If you own bearer securities, look after them! No dividend is paid to such shares and no interest paid to such bonds. Instead the certificate will have several coupons attached. These must be physically removed from the certificate and presented to the originating company for payment of any dividend or interest to be made. Bears These stockmarket animals are pessimists, they expect share prices or any other type of investment to fall. In a 'bear market' the general sentiment is that prices are going to go lower and majority of dealers will sell as quickly as possible for fear of holding shares which diminish in value.Bears, like 'bulls' drive the market. 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. 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 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. 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 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. Capital Adequacy The test of a securities business's ability to meet its financial obligation.Capital adequacy rules mean that a bank/financial institution has to have enough money to conduct its business Capitalization The total value of the company in the stockmarket.This value is arrived at by multiplying the number of shares in issue by the company's share price. This market capitalization obviously fluctuates as the share price moves up and down.It's an important figure - if your company is worth 2 billion, you'll have more credibility with bankers and other companies you want to take over than if you're a little minnow with hardly any value. Capitalization Issue Money from a company's reserves is converted into issued capital, which is then distributed to shareholders in place of a cash dividend. This is also known as a Scrip Issue. Call Risk The risk that bonds will be redeemed (or "called") before maturity. This possibility increases during periods of falling interest rates. Capital Appreciation An increase in the value of an investment, measured by the increase in a fund unit's value from the time of purchase to the time of redemption. Capital Gain The amount by which an investment's selling price exceeds its purchase price. Capital Market A market where debt or equity securities are traded. Commercial Paper Debt instruments issued by corporations to meet their short-term financing needs. Such instruments are unsecured and have maturities ranging from 15 to 365 days.

Commission A fee charged by a broker or distributor for his/her service in facilitating a transaction. Coupon Interest rate on a debt security that the issuer promises to pay to the holder until maturity. Usually expressed as a percentage of the face value Consideration Consideration is the total purchase or sale amount associated with a transaction. The amount you 'pay' or 'receive'. It may also be the basis for working out the commission, taxes and any other charges you are asked to pay. Contract On any securities market this is the agreement between a buyer and a seller buy or sell securities. The written agreement between the seller and the buyer to transfer ownership of the property from the former to the latter.It is a legally binding agreement for sale.In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction. Convertible Any security is described as convertible when it carries the right or option for the holder to at some stage convert it in for another form of security at a fixed price. Convertibles are often bonds or loan stock (but sometimes preference shares) which carry the right to be converted into ordinary shares at some date in the future at a previously specified price. Corporate Bonds A corporate bond is an IOU issued by a public company, such as HLL,ITC, TELCO etc. When you invest in a corporate bond, you are lending money to the company. In return you will receive interest at a fixed rate and the promise that your capital will be repaid at a certain date in the future. The guarantee that our capital will be returned is only as good as the company you are lending money to. While HLL, ITC, TELCO are considered 'good risks' by investment pundits because they are blue chip companies, other smaller companies are likely to be a less good risk. Correction A correction is a term to describe a downward movement in share prices. In other words, a shake out or even a crash or mini-cash. Stockbrokers and fund managers like the term correction, perhaps because they believe if they use the term crash or 'heavy fall', it'll cause panic. Whatever you decide to call a downward jolt in share prices, if you lose money, it may be described as a correction, but you'll feel pretty sick all the same! Clearing Clearing refers to the process by which all transactions between members is settled through multilateral netting. Cum-bonus

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 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 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 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. 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 preannounced 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 companys shares are offered widely to investors on the market. Flotations are often referred to as new issues although it is possible for companies already in the stockmarket to issue new shares Futures A contract for the purchase and sale of a commodity, financial instrument or index at a fixed price at a fixed date in the future. Futures contracts were originally invented to allow those who regularly buy and sell goods to protect themselves against future changes in the price of those goods. In other words, the futures markets evolved to allow producers or consumers to hedge their risk. Firm Price It is the price quoted by a market-maker at which he is committed to deal with a broker or other market-maker. The only occasion in which a market-maker may vary from offering a firm price is when the Stock Exchange has declared a fast market. Financial risk Shareholders risk resulting from the use of debt. Debt causes financial risk by increase of the variability of shareholders return and threatening the solvency of the firm. Forward trading Forward trading refers to trading where contracts traded today are settled at some future date at prices decided today. Thus a contract to buy dollars at Rs.42 per dollar after 3 months is a forward contract. The price is fixed today but the settlement will be after 3 months. Floating Stock The fraction of the paid-up equity capital of a company which normally participates in day to day trading. Forward Purchase 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. 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. Growth Fund 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. 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. 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 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 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. 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. Its 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 investors 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 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. 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 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. 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 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. 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 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). 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

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

3.

4.

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. 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. 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 exchange. Companies are not quoted (or listed) because either: they do not wish to be and prefer to run their businesses in relative privacy, orThey do not meet the listing requirements, such as minimum market capitalisation. In other words they are too small to join a stockmarket.For people interested in investing in unquoted shares, there are investment trusts which specialise in this area. User 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

2.

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. 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. 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.

4)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 Clients 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 Karvys 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 Shareholders 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 or someone authorised to take oaths that the statements in the document are true. 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. BuyBack 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 debtequity 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 Depositorys 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 companys 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. 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 companys 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 owners 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. 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 Depositorys 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 clients account. The DPM shall credit the clients 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. 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 companys 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 riskbearing part of the companys 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. 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 persons 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 minors 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 companys shares to the public. The shares offered may be existing ones held privately, or the company may issue new shares to the public. Inter Depository Instructions : Inter-Depository Transfer means transfer of securities which are admitted for dematerialisation on both the depositories from an account held in one depository to an account held in the other depository. Interim Dividend : A dividend which is declared and paid before annual earnings have been determined. Intermediary Account : Any person desiring to act as an approved intermediary needs to open an intermediary account with any Depository Participant of his choice. An intermediary account may be opened with the Depository Participant only after the intermediary has obtained registration from Securities and Exchange Board of India and with the prior approval of NSDL. This account is meant only to deposit the securities received from the lender and lend them to the borrower. The intermediary does not have any ownership ( beneficiary ) rights over the shares held in such an account. ISIN : International Securities Identification Number ( ISIN ) is a code that uniquely identifies a specific securities issue. Issue : The number of shares of a company on sale to the public at a given time. Issue Price : The price at which a companys 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 shareholders 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 companys shares become tradable on a stock exchange. An unlisted companys shares are tradable privately between the shareholders and the pricing of the shares is difficult to determine. A listed share on the other hand gets a daily price quotation, anybody can buy and sell the shares through brokers and market makes, and if the company wishes to raise new capital it has the option of issuing new shares. Locked-in : A specified time period that an investor is locked into an investment. For example a period following a flotation when major shareholders agree not to sell their holdings. The objective is to give investors confidence that the management and key shareholders do not intend to cash in their stock the moment the market opens. 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 targets 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 the company, where a nomination is made in the prescribed manner, in the event of death of the shareholder/s the nominee shall be entitled to all rights in the shares or debentures. NSDL : The National Securities Depository Limited is an organisation promoted by the Industrial Development Bank of India, the Unit Trust of India and the National Stock Exchange of India Limited to provide electronic depository facilities for securities traded in the equity and the debt market. NSDL commenced its operations in the year 1996 and is the first depository in India. NSE : National Stock Exchange is one of the leading stock exchanges in India. The NSE has been set up by leading institutions to provide a modern, fully automated screen based trading system with national reach.

NRI : As per the Foreign Exchange Management Act, 1999 ( FEMA ), an Indian citizen is considered as NRI when he / she stays abroad : For employment For Carrying on business or vocation outside India Under circumstances indicating an intention of an uncertain duration of stay abroad. The definition of NRIs 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 Partners 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 companys prospectus mostly on a prorata basis. PaidUp Capital : Capital subscribed by shareholders for a companys 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 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 companys 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 users 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 clients 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 clients 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 clients blocked balances are debited. Registrar and Transfer Agent ( RTA ) : A transfer agent and registrar for a publicly held company keeps record of every outstanding share certificate and the name of the person to whom it is registered. When the share changes hands, the transfer agent transfers the ownership of the stock from the sellers name to the buyers 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. Karvys 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. Karvys 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

clients 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 borrowers 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 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 companys 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 youve 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. 6)Debit 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: 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 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 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 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 taxexempt 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 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 issuers 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. 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 bonds 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. 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 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 Purchasing power risk The risk of loss in the value of an assets 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 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. 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. 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 bonds life or the date on which the debt will cease to exist and the borrower will have completely paid off the amount borrowed. See: Maturity Term premium A premium (of higher yield) that bondholders expect to receive for securities with longer maturity dates. Terminal value The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm) on some specified future valuation date. Unsecured debt Debt that does not identify specific assets that can be taken over by the debtholder in case of default. Volatility A measure of risk based on the standard deviation of the asset return. Also, volatility is a variable that appears in option pricing formulas. In the option pricing formula, it denotes the volatility of the

underlying assets 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.

7)Insurance Glossory

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. 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. TOP 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. All-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.

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

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. 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. TOP 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. TOP 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. 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. TOP 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 Benefit The 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.

8)Options glossary
American-Style Option An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options in the United States are American-style. Arbitrage 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 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. Top 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 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. Top 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. 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. Top 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 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. Top 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) 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." Top

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 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. Top 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) 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. Top Short Position An investors 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 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. Top 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.

9) 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. 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 shortterm 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 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. 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 freemarket 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. 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 doesnt 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. 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 expressed as a percentage of the principal per year. 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. 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. 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 Governments 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. 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)

Financial Terms

1)IPO glossary Allotment Allotment is the distribution of shares to the public during an offer. The normal rule of allocation is to allocate the shares in the event of oversubscription on a proportionate basis. This however excludes the firm allotment portion. Auditor An auditor is an individual who conducts an examination and verification of a company's financial and accounting records and supporting documents.

Top 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. Top 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. Top 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. Top 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. Top 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 (SEBIs 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. Top 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. Top 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 aftermarket. Top 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. Top 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 Top 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. Top 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. Top Lead Managers The lead manager is appointed by the company which desires to raise capital from the market. The lead manager performs the following activities: Designing the instrument Pricing the issue Timing the issue Marketing Preparing the offer document Listing

Allotment/Refund Merchant Bankers Merchant Bankers facilitate the issue process. Role of Merchant Banker: Directing and co-ordinating the activities with under writers, registrars and bankers. Assuring the investors of the soundness of the issue Promising companies/entrepreneurs/promoters to tap resources, Complying with SEBI guidelines.

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. Top Prospectus The official offer document included in the registration statement filed with SEBI in conjunction with a public offer. The prospectus contains information about the offer of securities and should be given to the original purchasers no later than the written confirmation of their purchase.

Registration Statement A document that must be filed with SEBI before securities can be sold to the public. It describes the business of the issuer of the securities, how the proceeds of the offering will be used, audited financial statements, some background on the principal executives, and other pertinent data. Top External Risk Factors The external factors that influence the companys 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. Internal Risk Factors The internal factors that influence the companys 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 companys internal operations and management which are within the control of the company. Management Perception of Risk Factors The managements 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. Top 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. Top 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. Top Venture Capital An important source of financing used to fund start-up companies that do not have access to capital markets. Venture Capital typically entails significant investment risk but offers the potential for above-average future returns. Top / Back IPO Home / Karvy Home

2) 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.
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Annualized Return The return a fund would have generated over a year on a compounded basis. This method is the best indicator to measure the performance of a fund.
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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.
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Asset Allocation

It is the process of allocating the overall corpus to different assets like equities, bonds, real estate, derivatives etc.
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Credit Risk It is the risk that the issuer of a fixed income security may default on payment of interest and repayment of principal. It is also referred to as default risk.
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Debt fund A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds etc. These funds are generally preferred by investors wanting steady income and not willing to take higher risks.
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Dematerialization The process of converting the physical /paper shares in Electronic form. SEBI had made it compulsory to get the shares of some companies dematerialized. In this process the investor opens an account with a Depository Participant (DP) and the number of shares the investor holds is shown in this account.
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Depository Participant An authorized body who is involved in dematerialization of shares and maintaining of the investors accounts.
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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.
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Diversification It is the investment strategy of not putting all ones eggs in one basket. By diversifying a portfolio across different industries, overall risk of the portfolio is reduced.
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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.
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Efficient Portfolio A portfolio which ensures maximum return for a given level of risk or a minimum level of risk for an expected return.
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Factor Fund It is a mutual fund that has a core philosophy of investing in a particular factor or style in the market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds, Low P/E funds, Growth funds etc.
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Financial Pyramid An investment plan in the shape of a pyramid structure where the safest investments are at the base and the riskiest investments at the peak.
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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.
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Equity/Growth fund A fund that invest primarily in equities and has capital appreciation as its investment objective
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Fund Manager A professional manager appointed by the Asset Management Company to invest money in accordance with the objects of the scheme.
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Income Fund A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors who wants regular income. It pays dividends to the investors out of its earnings.
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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.
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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.
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Interim Dividend An advance installment of the dividend finally declared. More often one, but sometimes two such payments are made. The final dividend is often at least equal, and sometimes more. The interim

dividend is a fair indication of a company's profitability, during the working year.

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Liquid Fund A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).
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Liquidity Risk It is the risk in a fixed income security as well as in equities that these securities may not be sold in the market at close to their value. Liquidity risk is characteristic of narrow markets like India.
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Market Capitalization Represents the market value of the company. It is a product of the current market price and the number of shares outstanding.
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Market Instrument A fully negotiable instrument for short-term debt.

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Market Lot A fixed minimum number of shares, in which or in multiples of which, shares are bought and sold on the stock exchange. The advent of dematerialization of shares will do away the significance of market lot.
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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.
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No-Load Fund Shares of an open-ended fund, which can be bought directly from the fund without any sales charge or brokerage. US-64 is an example of a no-load fund.
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Offer Price 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.
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Pari Passu Ranking equally. After conversion of debentures into shares, the new shares created carry the same rights as the existing shares of the company to receive dividends, rights and bonus shares, and to participate in the company's profit and loss.
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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.
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Rating Evaluation of credit risk in fixed income securities. This evaluation is specific to the security rated and is done in India by Crisil, Icra, Care and Duff & Phelps.
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Record Date It is the date announced by the company/mutual fund, which is a cut-off date for corporate benefits like dividends, rights, bonus etc. Only investors whose names appear in the companys registers on that date are eligible for the said benefits.
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Reinvestment Plan It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund.
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Reinvestment Risk It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate. This problem becomes pronounced in a falling interest rate scenario.
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Sector fund Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For e.g. Kothari Pioneer Infotech Fund. Sector funds are generally considered to be risky in nature.
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Securities Financial documents which give the owner specific rights of ownership; these include: equity and preference shares, debentures, treasury bills, government bonds, units of mutual fund, and any other marketable documents.
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Sinking Fund Money regularly set aside in a separate fund and invested by a company for the repayment of debt instruments (fixed deposits, debentures, other loans) or the redemption of preference shares, or for replacement of assets.
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Sponsor Sponsor is the parent organization that contributes the initial capital of the asset management company (AMC). e.g. Kotak Mahindra Finance is the sponsor for Kotak Mahindra Mutual Fund.
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Switching Transferring from one scheme to another in a group of schemes operated by a Mutual Fund, where the rules so permit. A switching fee may or may not be charged.
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SWOT Analysis 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.
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Systematic Risk This is the market risk that a security faces and is essentially non-diversifiable in nature. This risk is caused by macro level factors like changes in inflation, interest rates, budget announcements etc.
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Tax saving fund Such funds allow the income tax payees to claim a rebate under the Income Tax Act.
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Technical Analysis A method of prediction of share price movements based on a study of price graphs or charts on the assumption that share price trends are repetitive. Since investor psychology follows a certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he only studies price and volume behavior.
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Top-Down Investment An approach to stock selection which evaluates the prospects of the economy first, then the prospects of the industry and then finally the prospects of a particular company to take an investment decision. It is the opposite of a bottom-up approach to investing.
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Transfer Agents

Professional firms, now mostly computerized, which maintain the records of shareholders of their client companies.
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Treasury Bills These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India for short-term loans, 91 days to 364 days.
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Trustee The trustee is the legal owner of the mutual fund. The trustee takes into custody or under its control all the capital and property of every scheme of the mutual fund and hold it in trust for the unitholders of the scheme.
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Unsystematic Risk This is the proportion of risk that is specific to a particular company. This diversifiable risk could arise due to company specific factors like operational factors, financial factors, labor unrest etc.
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Value Investment Investment in shares whose intrinsic value is above their market price. Fundamental analysts often make recommendations of value investment, as they can spot undervalued shares.
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Vulture Fund It is a fund that takes over the non-performing assets of bank or financial institution at a discount and issues pass-through units to the investors.
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Venture Capital Fund A limited company formed to provide venture or risk capital to new industries.
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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.
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3) Stock market glossary

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. Arbitration Settlement of claims differences or disputes between one member and another and between a member and his clients, authorised clerks, sub-brokers etc., through appointed arbitrators. Bearer Security This is a bond or a share for which there is no other proof of ownership than the physical possession of the security. No official record or register of ownership is kept, the owner is the "bearer" of the share or bond certificate. This means that these certificates are easily traded without formality. If you own bearer securities, look after them! No dividend is paid to such shares and no interest paid to such bonds. Instead the certificate will have several coupons attached. These must be physically removed from the certificate and presented to the originating company for payment of any dividend or interest to be made. Bears These stockmarket animals are pessimists, they expect share prices or any other type of investment to fall. In a 'bear market' the general sentiment is that prices are going to go lower and majority of dealers will sell as quickly as possible for fear of holding shares which diminish in value.Bears, like 'bulls' drive the market. 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. 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 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. 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 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. Capital Adequacy The test of a securities business's ability to meet its financial obligation.Capital adequacy rules mean that a bank/financial institution has to have enough money to conduct its business Capitalization The total value of the company in the stockmarket.This value is arrived at by multiplying the number of shares in issue by the company's share price. This market capitalization obviously fluctuates as the share price moves up and down.It's an important figure - if your company is worth 2 billion, you'll have more credibility with bankers and other companies you want to take over than if you're a little minnow with hardly any value. Capitalization Issue Money from a company's reserves is converted into issued capital, which is then distributed to shareholders in place of a cash dividend. This is also known as a Scrip Issue. Call Risk The risk that bonds will be redeemed (or "called") before maturity. This possibility increases during periods of falling interest rates.

Capital Appreciation An increase in the value of an investment, measured by the increase in a fund unit's value from the time of purchase to the time of redemption. Capital Gain The amount by which an investment's selling price exceeds its purchase price. Capital Market A market where debt or equity securities are traded. Commercial Paper Debt instruments issued by corporations to meet their short-term financing needs. Such instruments are unsecured and have maturities ranging from 15 to 365 days. Commission A fee charged by a broker or distributor for his/her service in facilitating a transaction. Coupon Interest rate on a debt security that the issuer promises to pay to the holder until maturity. Usually expressed as a percentage of the face value Consideration Consideration is the total purchase or sale amount associated with a transaction. The amount you 'pay' or 'receive'. It may also be the basis for working out the commission, taxes and any other charges you are asked to pay. Contract On any securities market this is the agreement between a buyer and a seller buy or sell securities. The written agreement between the seller and the buyer to transfer ownership of the property from the former to the latter.It is a legally binding agreement for sale.In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction. Convertible Any security is described as convertible when it carries the right or option for the holder to at some stage convert it in for another form of security at a fixed price. Convertibles are often bonds or loan stock (but sometimes preference shares) which carry the right to be converted into ordinary shares at some date in the future at a previously specified price. Corporate Bonds A corporate bond is an IOU issued by a public company, such as HLL,ITC, TELCO etc. When you invest in a corporate bond, you are lending money to the company. In return you will receive interest at a fixed rate and the promise that your capital will be repaid at a certain date in the future. The guarantee that our capital will be returned is only as good as the company you are lending money to. While HLL, ITC, TELCO are considered 'good risks' by investment pundits because they are blue chip companies, other smaller companies are likely to be a less good risk.

Correction A correction is a term to describe a downward movement in share prices. In other words, a shake out or even a crash or mini-cash. Stockbrokers and fund managers like the term correction, perhaps because they believe if they use the term crash or 'heavy fall', it'll cause panic. Whatever you decide to call a downward jolt in share prices, if you lose money, it may be described as a correction, but you'll feel pretty sick all the same! Clearing Clearing refers to the process by which all transactions between members is settled through multilateral netting. Cum-bonus 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 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 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 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. 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 preannounced 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 companys shares are offered widely to investors on the market. Flotations are often referred to as new issues although it is possible for companies already in the stockmarket to issue new shares Futures A contract for the purchase and sale of a commodity, financial instrument or index at a fixed price at a fixed date in the future. Futures contracts were originally invented to allow those who regularly buy and sell goods to protect themselves against future changes in the price of those goods. In other words, the futures markets evolved to allow producers or consumers to hedge their risk. Firm Price It is the price quoted by a market-maker at which he is committed to deal with a broker or other market-maker. The only occasion in which a market-maker may vary from offering a firm price is when the Stock Exchange has declared a fast market. Financial risk Shareholders risk resulting from the use of debt. Debt causes financial risk by increase of the variability of shareholders return and threatening the solvency of the firm. Forward trading

Forward trading refers to trading where contracts traded today are settled at some future date at prices decided today. Thus a contract to buy dollars at Rs.42 per dollar after 3 months is a forward contract. The price is fixed today but the settlement will be after 3 months. Floating Stock The fraction of the paid-up equity capital of a company which normally participates in day to day trading. Forward Purchase 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. 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. Growth Fund 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. 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. 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 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 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. 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. Its 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 investors 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 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. 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 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. 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 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. 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 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). 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

5. 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.

6. 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. 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.

7.

8. 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 exchange. Companies are not quoted (or listed) because either: they do not wish to be and prefer to run their businesses in relative privacy, orThey do not meet the listing requirements, such as minimum market capitalisation. In other words they are too small to join a stockmarket.For people interested in investing in unquoted shares, there are investment trusts which specialise in this area. User 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

4. 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. 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.

5.

6. 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. 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.

4)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 Clients 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 Karvys 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

Shareholders 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 or someone authorised to take oaths that the statements in the document are true. 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. BuyBack 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 debtequity 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 Depositorys 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 companys 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. 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 companys 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 owners 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. 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 Depositorys 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 clients account. The DPM shall credit the clients 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. 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 companys 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 riskbearing part of the companys 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. 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 persons 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 minors 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 companys shares to the public. The shares offered may be existing ones held privately, or the company may issue new shares to the public. Inter Depository Instructions : Inter-Depository Transfer means transfer of securities which are admitted for dematerialisation on both the depositories from an account held in one depository to an account held in the other depository. Interim Dividend : A dividend which is declared and paid before annual earnings have been determined.

Intermediary Account : Any person desiring to act as an approved intermediary needs to open an intermediary account with any Depository Participant of his choice. An intermediary account may be opened with the Depository Participant only after the intermediary has obtained registration from Securities and Exchange Board of India and with the prior approval of NSDL. This account is meant only to deposit the securities received from the lender and lend them to the borrower. The intermediary does not have any ownership ( beneficiary ) rights over the shares held in such an account. ISIN : International Securities Identification Number ( ISIN ) is a code that uniquely identifies a specific securities issue. Issue : The number of shares of a company on sale to the public at a given time. Issue Price : The price at which a companys 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 shareholders 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 companys shares become tradable on a stock exchange. An unlisted companys shares are tradable privately between the shareholders and the pricing of the shares is difficult to determine. A listed share on the other hand gets a daily price quotation, anybody can buy and sell the shares through brokers and market makes, and if the company wishes to raise new capital it has the option of issuing new shares. Locked-in : A specified time period that an investor is locked into an investment. For example a period following a flotation when major shareholders agree not to sell their holdings. The objective is to give investors confidence that the management and key shareholders do not intend to cash in their stock the moment the market opens. 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 targets 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 the company, where a nomination is made in the prescribed manner, in the event of death of the shareholder/s the nominee shall be entitled to all rights in the shares or debentures. NSDL : The National Securities Depository Limited is an organisation promoted by the Industrial Development Bank of India, the Unit Trust of India and the National Stock Exchange of India Limited to provide electronic depository facilities for securities traded in the equity and the debt market. NSDL commenced its operations in the year 1996 and is the first depository in India. NSE : National Stock Exchange is one of the leading stock exchanges in India. The NSE has been set up by leading institutions to provide a modern, fully automated screen based trading system with national reach. NRI : As per the Foreign Exchange Management Act, 1999 ( FEMA ), an Indian citizen is considered as NRI when he / she stays abroad : For employment For Carrying on business or vocation outside India Under circumstances indicating an intention of an uncertain duration of stay abroad. The definition of NRIs 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 Partners 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 companys prospectus mostly on a prorata basis. PaidUp Capital : Capital subscribed by shareholders for a companys 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 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 companys 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 users 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 clients 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 clients 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 clients blocked balances are debited. Registrar and Transfer Agent ( RTA ) : A transfer agent and registrar for a publicly held company keeps record of every outstanding share certificate and the name of the person to whom it is registered. When the share changes hands, the transfer agent transfers the ownership of the stock from the sellers name to the buyers 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. Karvys 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. Karvys 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 clients 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 borrowers 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 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 companys 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 youve 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.

6)Debit 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: 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 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 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 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 taxexempt 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 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 issuers 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. 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 bonds 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. 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 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 Purchasing power risk The risk of loss in the value of an assets 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 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. 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. 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 bonds life or the date on which the debt will cease to exist and the borrower will have completely paid off the amount borrowed. See: Maturity Term premium A premium (of higher yield) that bondholders expect to receive for securities with longer maturity dates. Terminal value The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm) on some specified future valuation date. Unsecured debt Debt that does not identify specific assets that can be taken over by the debtholder in case of default. Volatility A measure of risk based on the standard deviation of the asset return. Also, volatility is a variable that appears in option pricing formulas. In the option pricing formula, it denotes the volatility of the underlying assets 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.

7)Insurance Glossory

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. 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. TOP 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. All-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. TOP 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. 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. TOP 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. 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. TOP 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. TOP 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. 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.

TOP 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. TOP 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, 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. TOP 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. TOP 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. TOP 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. 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.

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

TOP 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. TOP 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. 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. TOP 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 Benefit The 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.

8)Options glossary
American-Style Option An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options in the United States are American-style. Arbitrage

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 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. Top 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 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. Top 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. 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. Top 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 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. Top 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) 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." Top 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 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. Top 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) 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. Top Short Position An investors 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 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. Top 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.

9) 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. 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 shortterm 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 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. 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 freemarket 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. 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 doesnt 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. 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 expressed as a percentage of the principal per year. 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. 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. 3. 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. 4. 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. 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 Governments 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. 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)

Financial Terms

1)IPO glossary Allotment Allotment is the distribution of shares to the public during an offer. The normal rule of allocation is to allocate the shares in the event of oversubscription on a proportionate basis. This however excludes the firm allotment portion. Auditor An auditor is an individual who conducts an examination and verification of a company's financial and accounting records and supporting documents.

Top 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. Top 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. Top 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. Top 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. Top 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 (SEBIs 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. Top 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. Top 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 aftermarket. Top 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. Top 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 Top 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. Top 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. Top Lead Managers The lead manager is appointed by the company which desires to raise capital from the market. The lead manager performs the following activities: Designing the instrument Pricing the issue Timing the issue Marketing Preparing the offer document Listing Allotment/Refund Merchant Bankers Merchant Bankers facilitate the issue process. Role of Merchant Banker: Directing and co-ordinating the activities with under writers, registrars and bankers. Assuring the investors of the soundness of the issue Promising companies/entrepreneurs/promoters to tap resources, Complying with SEBI guidelines.

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. Top Prospectus The official offer document included in the registration statement filed with SEBI in conjunction with a public offer. The prospectus contains information about the offer of securities and should be given to the original purchasers no later than the written confirmation of their purchase. Registration Statement A document that must be filed with SEBI before securities can be sold to the public. It describes the business of the issuer of the securities, how the proceeds of the offering will be used, audited financial statements, some background on the principal executives, and other pertinent data. Top External Risk Factors The external factors that influence the companys 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. Internal Risk Factors The internal factors that influence the companys 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 companys internal operations and management which are within the control of the company. Management Perception of Risk Factors The managements 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.

Top 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. Top 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. Top Venture Capital An important source of financing used to fund start-up companies that do not have access to capital markets. Venture Capital typically entails significant investment risk but offers the potential for above-average future returns. Top / Back IPO Home / Karvy Home

2) 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.
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Annualized Return The return a fund would have generated over a year on a compounded basis. This method is the best indicator to measure the performance of a fund.
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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.
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Asset Allocation It is the process of allocating the overall corpus to different assets like equities, bonds, real estate, derivatives etc.
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Credit Risk It is the risk that the issuer of a fixed income security may default on payment of interest and repayment of principal. It is also referred to as default risk.
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Debt fund A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds etc. These funds are generally preferred by investors wanting steady income and not willing to take higher risks.
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Dematerialization The process of converting the physical /paper shares in Electronic form. SEBI had made it compulsory to get the shares of some companies dematerialized. In this process the investor opens an account with a Depository Participant (DP) and the number of shares the investor holds is shown in this account.
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Depository Participant 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.
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Diversification It is the investment strategy of not putting all ones eggs in one basket. By diversifying a portfolio across different industries, overall risk of the portfolio is reduced.
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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.
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Efficient Portfolio A portfolio which ensures maximum return for a given level of risk or a minimum level of risk for an expected return.
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Factor Fund It is a mutual fund that has a core philosophy of investing in a particular factor or style in the market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds, Low P/E funds, Growth funds etc.
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Financial Pyramid An investment plan in the shape of a pyramid structure where the safest investments are at the base and the riskiest investments at the peak.
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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.
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Equity/Growth fund A fund that invest primarily in equities and has capital appreciation as its investment objective
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Fund Manager A professional manager appointed by the Asset Management Company to invest money in accordance with the objects of the scheme.
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Income Fund

A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors who wants regular income. It pays dividends to the investors out of its earnings.
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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.
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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.
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Interim Dividend An advance installment of the dividend finally declared. More often one, but sometimes two such payments are made. The final dividend is often at least equal, and sometimes more. The interim dividend is a fair indication of a company's profitability, during the working year.
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Liquid Fund A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).
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Liquidity Risk It is the risk in a fixed income security as well as in equities that these securities may not be sold in the market at close to their value. Liquidity risk is characteristic of narrow markets like India.
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Market Capitalization Represents the market value of the company. It is a product of the current market price and the number of shares outstanding.
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Market Instrument A fully negotiable instrument for short-term debt.

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Market Lot A fixed minimum number of shares, in which or in multiples of which, shares are bought and sold on the stock exchange. The advent of dematerialization of shares will do away the significance of market lot.
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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.
TOP

No-Load Fund Shares of an open-ended fund, which can be bought directly from the fund without any sales charge or brokerage. US-64 is an example of a no-load fund.
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Offer Price 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.
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Pari Passu Ranking equally. After conversion of debentures into shares, the new shares created carry the same rights as the existing shares of the company to receive dividends, rights and bonus shares, and to participate in the company's profit and loss.
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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.
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Rating Evaluation of credit risk in fixed income securities. This evaluation is specific to the security rated and is done in India by Crisil, Icra, Care and Duff & Phelps.
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Record Date It is the date announced by the company/mutual fund, which is a cut-off date for corporate benefits like dividends, rights, bonus etc. Only investors whose names appear in the companys registers on that date are eligible for the said benefits.
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Reinvestment Plan

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

Reinvestment Risk It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate. This problem becomes pronounced in a falling interest rate scenario.
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Sector fund Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For e.g. Kothari Pioneer Infotech Fund. Sector funds are generally considered to be risky in nature.
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Securities Financial documents which give the owner specific rights of ownership; these include: equity and preference shares, debentures, treasury bills, government bonds, units of mutual fund, and any other marketable documents.
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Sinking Fund Money regularly set aside in a separate fund and invested by a company for the repayment of debt instruments (fixed deposits, debentures, other loans) or the redemption of preference shares, or for replacement of assets.
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Sponsor Sponsor is the parent organization that contributes the initial capital of the asset management company (AMC). e.g. Kotak Mahindra Finance is the sponsor for Kotak Mahindra Mutual Fund.
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Switching Transferring from one scheme to another in a group of schemes operated by a Mutual Fund, where the rules so permit. A switching fee may or may not be charged.
TOP

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.
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Systematic Risk This is the market risk that a security faces and is essentially non-diversifiable in nature. This risk is caused by macro level factors like changes in inflation, interest rates, budget announcements etc.
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Tax saving fund Such funds allow the income tax payees to claim a rebate under the Income Tax Act.
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Technical Analysis A method of prediction of share price movements based on a study of price graphs or charts on the assumption that share price trends are repetitive. Since investor psychology follows a certain pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry; he only studies price and volume behavior.
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Top-Down Investment An approach to stock selection which evaluates the prospects of the economy first, then the prospects of the industry and then finally the prospects of a particular company to take an investment decision. It is the opposite of a bottom-up approach to investing.
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Transfer Agents Professional firms, now mostly computerized, which maintain the records of shareholders of their client companies.
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Treasury Bills These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India for short-term loans, 91 days to 364 days.
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Trustee The trustee is the legal owner of the mutual fund. The trustee takes into custody or under its control all the capital and property of every scheme of the mutual fund and hold it in trust for the unitholders of the scheme.
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Unsystematic Risk This is the proportion of risk that is specific to a particular company. This diversifiable risk could arise due to company specific factors like operational factors, financial factors, labor unrest etc.
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Value Investment Investment in shares whose intrinsic value is above their market price. Fundamental analysts often make recommendations of value investment, as they can spot undervalued shares.
TOP

Vulture Fund

It is a fund that takes over the non-performing assets of bank or financial institution at a discount and issues pass-through units to the investors.
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Venture Capital Fund A limited company formed to provide venture or risk capital to new industries.
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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.
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3) Stock market glossary

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. Arbitration

Settlement of claims differences or disputes between one member and another and between a member and his clients, authorised clerks, sub-brokers etc., through appointed arbitrators. Bearer Security This is a bond or a share for which there is no other proof of ownership than the physical possession of the security. No official record or register of ownership is kept, the owner is the "bearer" of the share or bond certificate. This means that these certificates are easily traded without formality. If you own bearer securities, look after them! No dividend is paid to such shares and no interest paid to such bonds. Instead the certificate will have several coupons attached. These must be physically removed from the certificate and presented to the originating company for payment of any dividend or interest to be made. Bears These stockmarket animals are pessimists, they expect share prices or any other type of investment to fall. In a 'bear market' the general sentiment is that prices are going to go lower and majority of dealers will sell as quickly as possible for fear of holding shares which diminish in value.Bears, like 'bulls' drive the market. 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.

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

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.

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

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.

Capital Adequacy The test of a securities business's ability to meet its financial obligation.Capital adequacy rules mean that a bank/financial institution has to have enough money to conduct its business Capitalization The total value of the company in the stockmarket.This value is arrived at by multiplying the number of shares in issue by the company's share price. This market capitalization obviously fluctuates as the share price moves up and down.It's an important figure - if your company is worth 2 billion, you'll have more credibility with bankers and other companies you want to take over than if you're a little minnow with hardly any value. Capitalization Issue Money from a company's reserves is converted into issued capital, which is then distributed to shareholders in place of a cash dividend. This is also known as a Scrip Issue. Call Risk The risk that bonds will be redeemed (or "called") before maturity. This possibility increases during periods of falling interest rates. Capital Appreciation An increase in the value of an investment, measured by the increase in a fund unit's value from the time of purchase to the time of redemption. Capital Gain The amount by which an investment's selling price exceeds its purchase price. Capital Market A market where debt or equity securities are traded. Commercial Paper Debt instruments issued by corporations to meet their short-term financing needs. Such instruments are unsecured and have maturities ranging from 15 to 365 days. Commission A fee charged by a broker or distributor for his/her service in facilitating a transaction. Coupon Interest rate on a debt security that the issuer promises to pay to the holder until maturity. Usually expressed as a percentage of the face value Consideration Consideration is the total purchase or sale amount associated with a transaction. The amount you 'pay' or 'receive'. It may also be the basis for working out the commission, taxes and any other charges you are asked to pay. Contract On any securities market this is the agreement between a buyer and a seller buy or

sell securities. The written agreement between the seller and the buyer to transfer ownership of the property from the former to the latter.It is a legally binding agreement for sale.In two identical parts, one signed by seller and one by purchaser. When the two parts are exchanged (exchange of contracts) both parties are committed to the transaction. Convertible Any security is described as convertible when it carries the right or option for the holder to at some stage convert it in for another form of security at a fixed price. Convertibles are often bonds or loan stock (but sometimes preference shares) which carry the right to be converted into ordinary shares at some date in the future at a previously specified price. Corporate Bonds A corporate bond is an IOU issued by a public company, such as HLL,ITC, TELCO etc. When you invest in a corporate bond, you are lending money to the company. In return you will receive interest at a fixed rate and the promise that your capital will be repaid at a certain date in the future. The guarantee that our capital will be returned is only as good as the company you are lending money to. While HLL, ITC, TELCO are considered 'good risks' by investment pundits because they are blue chip companies, other smaller companies are likely to be a less good risk. Correction A correction is a term to describe a downward movement in share prices. In other words, a shake out or even a crash or mini-cash. Stockbrokers and fund managers like the term correction, perhaps because they believe if they use the term crash or 'heavy fall', it'll cause panic. Whatever you decide to call a downward jolt in share prices, if you lose money, it may be described as a correction, but you'll feel pretty sick all the same! Clearing Clearing refers to the process by which all transactions between members is settled through multilateral netting. Cum-bonus 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

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 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 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. 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 preannounced 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 companys shares are offered widely to investors on the market. Flotations are often referred to as new issues although it is possible for companies already in the stockmarket to issue new shares Futures A contract for the purchase and sale of a commodity, financial instrument or index at a fixed price at a fixed date in the future. Futures contracts were originally invented to allow those who regularly buy and sell goods to protect themselves against future

changes in the price of those goods. In other words, the futures markets evolved to allow producers or consumers to hedge their risk. Firm Price It is the price quoted by a market-maker at which he is committed to deal with a broker or other market-maker. The only occasion in which a market-maker may vary from offering a firm price is when the Stock Exchange has declared a fast market. Financial risk Shareholders risk resulting from the use of debt. Debt causes financial risk by increase of the variability of shareholders return and threatening the solvency of the firm. Forward trading Forward trading refers to trading where contracts traded today are settled at some future date at prices decided today. Thus a contract to buy dollars at Rs.42 per dollar after 3 months is a forward contract. The price is fixed today but the settlement will be after 3 months. Floating Stock The fraction of the paid-up equity capital of a company which normally participates in day to day trading. Forward Purchase 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. 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. Growth Fund 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. 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. 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 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 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. 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. Its 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 investors 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 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. 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 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. 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 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. 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 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). 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

9. 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.

10. GTC - A Good Till Cancelled (GTC) order remains in the system until it is

11.

12.

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. 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. 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 exchange. Companies are not quoted (or listed) because either: they do not wish to be and prefer to run their businesses in relative privacy, orThey do not meet the listing requirements, such as minimum market capitalisation. In other words they are too small to join a stockmarket.For people interested in investing in unquoted shares, there are investment trusts which specialise in this area. User 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

7. 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. 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.

8.

9. 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. 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.

4)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 Clients 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 Karvys 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 Shareholders 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 or someone authorised to take oaths that the statements in the document are true. 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. BuyBack 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 debtequity 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 Depositorys 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 companys 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. 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 companys 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 owners 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. 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 Depositorys 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 clients account. The DPM shall credit the clients 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. 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 companys 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 riskbearing part of the companys 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. 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 persons 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 minors 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 companys shares to the public. The shares offered may be existing ones held privately, or the company may issue new shares to the public. Inter Depository Instructions : Inter-Depository Transfer means transfer of securities which are admitted for dematerialisation on both the depositories from an account held in one depository to an account held in the other depository. Interim Dividend : A dividend which is declared and paid before annual earnings have been determined. Intermediary Account : Any person desiring to act as an approved intermediary needs to open an intermediary account with any Depository Participant of his choice. An intermediary account may be opened with the Depository Participant only after the intermediary has obtained registration from Securities and Exchange Board of India and with the prior approval of NSDL. This account is meant only to deposit the securities received from the lender and lend them to the borrower. The intermediary does not have any ownership ( beneficiary ) rights over the shares held in such an account. ISIN : International Securities Identification Number ( ISIN ) is a code that uniquely identifies a specific securities issue. Issue : The number of shares of a company on sale to the public at a given time. Issue Price : The price at which a companys 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 shareholders 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 companys shares become tradable on a stock exchange. An unlisted companys shares are tradable privately between the shareholders and the pricing of the shares is difficult to determine. A listed share on the other hand gets a daily price quotation, anybody can buy and sell the shares through brokers and market makes, and if the company wishes to raise new capital it has the option of issuing new shares. Locked-in : A specified time period that an investor is locked into an investment. For example a period following a flotation when major shareholders agree not to sell their holdings. The objective is to give investors confidence that the management and key shareholders do not intend to cash in their stock the moment the market opens. 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 targets 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 the company, where a nomination is made in the prescribed manner, in the event of death of the shareholder/s the nominee shall be entitled to all rights in the shares or debentures. NSDL : The National Securities Depository Limited is an organisation promoted by the Industrial Development Bank of India, the Unit Trust of India and the National Stock Exchange of India Limited to provide electronic depository facilities for securities traded in the equity and the debt market. NSDL commenced its operations in the year 1996 and is the first depository in India. NSE : National Stock Exchange is one of the leading stock exchanges in India. The NSE has been set up by leading institutions to provide a modern, fully automated screen based trading system with national reach. NRI : As per the Foreign Exchange Management Act, 1999 ( FEMA ), an Indian citizen is considered as NRI when he / she stays abroad : For employment For Carrying on business or vocation outside India Under circumstances indicating an intention of an uncertain duration of stay abroad. The definition of NRIs 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 Partners 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 companys prospectus mostly on a prorata basis. PaidUp Capital : Capital subscribed by shareholders for a companys 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 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 companys 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 users 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 clients 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 clients 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 clients blocked balances are debited. Registrar and Transfer Agent ( RTA ) : A transfer agent and registrar for a publicly held company keeps record of every outstanding share certificate and the name of the person to whom it is registered. When the share changes hands, the transfer agent transfers the ownership of the stock from the sellers name to the buyers 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. Karvys 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. Karvys 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 clients 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 borrowers 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 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 companys 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 youve 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.

6)Debit 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: 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 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 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 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 taxexempt 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 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 issuers 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. 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 bonds 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. 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 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 Purchasing power risk The risk of loss in the value of an assets 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 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. 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. 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 bonds life or the date on which the debt will cease to exist and the borrower will have completely paid off the amount borrowed. See: Maturity Term premium A premium (of higher yield) that bondholders expect to receive for securities with longer maturity dates. Terminal value The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm) on some specified future valuation date. Unsecured debt Debt that does not identify specific assets that can be taken over by the debtholder in case of default. Volatility A measure of risk based on the standard deviation of the asset return. Also, volatility is a variable that appears in option pricing formulas. In the option pricing formula, it denotes the volatility of the underlying assets 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.

7)Insurance Glossory

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. 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. TOP 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. All-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. TOP 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. 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. TOP 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. 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. TOP 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. TOP 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. 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. TOP 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. TOP 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, 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. TOP 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. TOP 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. TOP 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. 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. TOP 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. TOP

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

TOP 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. 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. TOP 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 Benefit The 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.

8)Options glossary
American-Style Option An option contract that may be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options in the United States are American-style. Arbitrage 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 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. Top 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 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. Top 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. 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. Top 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 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. Top 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) 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." Top 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 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. Top 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) 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. Top Short Position An investors 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 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. Top 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.

9) 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. 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 shortterm 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 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. 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 freemarket 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. 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 doesnt 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. 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 expressed as a percentage of the principal per year. 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. 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. 5. 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. 6. 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. 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 Governments 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. 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)

1)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. 2)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. 3)Bear Market A prolonged period of falling securities prices in a stock market. 4)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. 5)Bull:-A bull is one who expects a rise in price so that he can later sell at a higher price. 6)Bull Market:-A rising market with abundance of buyers and few sellers. 7)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. 8)Capital Gain The amount by which an investment's selling price exceeds its purchase price. 9)Capital Market A market where debt or equity securities are traded. 10)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. 11)Cumulative preference share Preference shares whose dividends will get accumulated, if the issuer does not make timely dividend payments. 12)Convertible preference shares Preference shares that can be converted into equity shares at the option of the holder.

13)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. 14)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. 15)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. 16)Dividend yield :Annual dividend paid on a share of a company divided by current share price of that company. 17)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. 18)Efficient capital market :A market in which all the players have all the material information at their disposal at the same time. 19)Financial risk:-Shareholders risk resulting from the use of debt. Debt causes financial risk by increase of the variability of shareholders return and threatening the solvency of the firm.

20)Foreign Institutional Investor (FII):-An overseas institutional investor permitted under Securities and Exchange Board of India (SEBI) guidelines to trade in Indian bourses. 21)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. 22)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. 23)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. 24)Listed Company:- A public limited company which satisfies certain listings conditions and signs a listing agreement wit the stock exchange for trading in it securities. One important listing condition is that 25% of its issued capital should be offered to the public. 26)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. 25)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. 26)Nasdaq :- National Association of Securities Dealers Automatic Quotation SystemAn American stock exchange. Its also known as the technology heaven for companies in that category. 29)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. 27)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.

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. 28)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 29)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. 30)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). 31)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. 32)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. 33)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. 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.

34)stock option: An option given to a person to buy stock at a predetermined price at a future date 35)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. 36)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 undersubscribed for a certain fee. 37)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. 38)Annual General Meeting (AGM) : The shareholders meeting, usually held at the end of each financial year, to discuss the previous performance and future outlook. 39)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. 40)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. 41)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. 42)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. 43)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.

44)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. 45)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. 46)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. 47)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 48)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. 50)Oversubscription : Any extra amount received by the company more than the proposed issued capital. 51)Lead Managers : The lead manager is appointed by the company which desires to raise capital from the market. The lead manager performs the following activities: Designing the instrument Pricing the issue Timing the issue Marketing Preparing the offer document Listing Allotment/Refund 52)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. 53)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. 54)External Risk Factors : The external factors that influence the companys 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. 55)Internal Risk Factors : The internal factors that influence the companys 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 companys internal operations and management which are within the control of the company. 56)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. 57)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 aboveaverage future returns. 58)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. 59)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 stock exchanges which provides an exit route. 60)Depository Participant : An authorized body who is involved in dematerialization of shares and maintaining of the investors accounts. 61)Fund Manager: A professional manager appointed by the Asset Management Company to invest money in accordance with the objects of the scheme. 62)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.

63)Liquid Fund : A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD). 64)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. 65)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. 66)SWOT Analysis : A type of fundamental analysis of the health of a company by examining its strengths(Sk), weakness (W), business opportunity (O), and any threat (T) or dangers it might be exposed to. 67)Balanced fund : A fund that invests substantially both in debt and equity. 68)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. 9)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 70)BuyBack 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.

71)BSE : Bombay Stock exchange is one of the oldest stock exchanges in Asia with over 6,000 stocks listed. 72)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.

73)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. 74)Depreciation : The charge in a companys 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. 75)Equity : The amount which shareholders own in a publicly quoted company. Equity is the risk-bearing part of the companys 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. 76)Prospectus : The document which companies have to publish before issuing new shares to the public. The prospectus sets out the companys business, its financial history, performance, capital structure and future prospects, and the content has to comply with certain specified rules. 77)Redeemable : A security which can be bought back by the original issuer from the purchaser. 78)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. 79)Redemption : The re purchase of a security, such as a bond or preferred stock, by the issuing company at or before maturity. 80)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. 81)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. 82)Unpaid Dividend : A dividend which has been declared by a company but has not yet been paid.

83)Reverse Merger:- The acquisition of a Public Company by a Private Company, allowing the private company to by pass the usually lengthy and complex process of going public. 84)Venture Capital:- Venture Capital is the capital that is invested in equity or debt securities (with equity conversion terms) of young unseasoned companies promoted by technocrats who attempt the break new path. It is a source of finance for new or relatively new, high risk, high profit potential products as the projects belong to untried segments or technologies. It is difficult for the promoters to obtain finance from conventional sources. The Venture Capitalists step-in to fill the gap. The Venture capitalists are knowledgeable and sophisticated investors who came forward to face high risks with the calculated hope of making much higher gains when the new projects succeed. They work on the theory that the greater the risk, the greater will be the profit. The big names in Indian Venture Capital Segment are Technology Development and Information Company of India (TDICI) and Risk Capital and Technology Corporation (RCTC) Which manage large funds made available by UTI. The Venture Capital . 85)Spin off A seperate entity is created from the group company making as loss. Sale are close the Loss making divisions in companies. 86)Joint Venture For a short period both companies will do a combined business ex:- Any Project 87)Corporate governance Middle man of Company and share holders. 88)Lead Director Act like a Middle man of Non Execute Directors and Chairman. 89)Merger & Amalgamation combining of two or more companies Merger : combined two companies and do a business on thje name of any one Ex: utiobc take over : combined 2 companies and do a business on the name of take over company : OBC 90)Reverce Merger

One private comapny can go to Public, merger with a Public comapny.

91)Reverse Acusation

One Public company for Publicly issued merger with Public company.
92)Indipendent Director Who is not employed by company from last five years. 93)Mutual Fund

An open-ended fund operated by an investment company Mutual Fund is gathering funds from small investors and investing in

different sectors is calles the Mutual Fund.

94)Stock Split & Reverse Split Stock Split: An increase in the number of outstanding shares of a company's stock, such that proportionate equity of each shareholder -Values is same and valume will be increse.remains the same. Reverse Split: Dicrese the namuber of shares - Valume will be Decrese and Values is same 95)EDGAR Electronically Data Gathering and retriving. 96)Difference between Public and Private company Maximum Share holders Private comapnies : 50 Public companies : Unlimited Minimum Share holders Private comapnies : 2 Public companies : 7 Directors miniimum in Privatecomapnies : 2 Public comapnies : 3 97)what is diversifiable risk and non diversifiable risk Which risk is can diversible is calls Diversable Risk Ex:Comnapny

Srike Which risk is can not Diversable is calls Non Diversable risk. Ex:- Tax
98)10-K Annual report pursuant to section 13 and 15(d) (for Big Comapanies) 99)10KSB Optional form for annual and transition reports of small business issuers under section 13 or 15(d) 100)Def 14 A Details about companyshare holders meetings and other details. 101)S-1 General form of Initial registration statement: (F-1 :Registration for certain foreign private issuers:) 102)S-8 Securities to be offered to employees pursuant to employee benefit plans

103)8-K Current report 104)Limited Partnership A business organization with one or more general partners, who manage the business and assume legal debts and obligations, and one or more limited partners, who are liable only to the extent of their investments. 105)Management buyout Going private through management's purchase of all outstanding shares. 106)Flag Ship company Reliance is the Flag ship company Reliance Industries is the Flag ship company under that reliance infocom, relience petroliam, reliance telecom are the under comapnies. 107)Core Working Capital Working Capital = Current assets minus current liabilities. 108)Working capital Management Managing of the working capital for a day to day operations 109)Insider trading Company employees will do the trading, by knowing the companyinformation in prior. 110)Bridge Finance :Bridge financing is when a loan is made for a short term, to "bridge" (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it. The need for this type of financing often results from mismatched closing dates. 111) Quorum : Minimum number of members of any body who must be present in order to transact the business of that body. 112)Proxy : A person authorized to act for another; an agent or substitute. The authority to act for another. The written authorization to act in place of another. 113)Direct Tax:A tax, such as an income or property tax, levied directly on the taxpayer

114) Indirect Tax : A tax, such as a sales tax or value-added tax, that is levied on goods or services rather than individuals and is ultimately paid by consumers in the form of higher prices.

115) Conglomerate :A corporation made up of a number of different companies that operate in diversified fields 116)PUT OPTION: Contract that grants the right to sell at a specified price a specific number of shares by a certain date. A put or call is considered a CAPITAL ASSET when held by a nondealer 117)CALL OPTION: The right, purchased by an investor, to buy a certain number of shares of a particular stock or stock index at a predetermined price before a preset deadline. The gain or loss on a call is a short-term or long-term CAPITAL GAIN, depending on the holding period. If the call expires before exercise, it is treated as a short-term gain or loss 118)FORWARD CONTRACT : Actual purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other financial instrument at a price specified now, with delivery and settlement at a specified future date. 119)FUTURES CONTRACT : Agreement to buy or sell a specific amount of a COMMODITY or financial instrument at a particular price on a stipulated future date. A futures contract obligates the buyer to purchase the underlying commodity and the seller to sell it, unless the contract is sold to another before settlement date. This contrasts with OPTIONS trading, in which the option buyer may choose whether or not to exercise the option by the exercise date