List of Terms relating to Indian Stock Exchange ↓
List of the important terms relating to indian stock exchange transactions.
1. Group A Shares
These are the listed equity shares of large and well established companies having broad investor base. These shares are actively traded and for these shares the facility for carrying forward a transaction from one accounting period to another is available. Naturally, these shares attract a lot of speculative multiples. These facilities are not available for group B shares. However, shares can be moved from Group B to Group A and vice versa depending on criteria for shifting. For instance the Bombay Stock Exchange has laid down several criteria for shifting shares from Group B to Group A; such as, an equity base of Rs. 10 crores, a market capitalization of Rs. 25-30 crores, a public holding of 35 to 40 percent, a shareholding population of 15,000 to 20,000, good dividend paying status, etc.
2. Group B Shares
These are those listed shares which do not follow the criteria prescribed for Group A shares. Group B shares are again divided into B1 and B shares on BSE. B1 shares represent well traded scrips among B group and they have weekly settlements.
3. Group C Shares
Under Group C, only odd lots and permitted securities are included. A number of shares that are less than the market lot are called odd lots. Market lot refers to the minimum number of shares of a particular security that must be transacted on a stock exchange. Odd lots have settlement once in a fortnights or once on Saturdays. Permitted securities are those that are not listed on a stock exchange but are listed on other exchanges in India. So they are permitted to be traded on BSE. Odd lots cannot be easily transacted on the stock exchange and so they are illiquid in nature.
Arbitration is a quasi-judicial process to resolve a dispute which is faster and inexpensive. The stock exchange facilitates the process of arbitration between the member and their clients. The disputes between the parties are resolved through arbitration in accordance with the by-laws of the exchange. Arbitration is required in the matters such as settlement of claims, differences and disputes between one member and another, between a member and his clients, sub-brokers or authorised clerks etc.
Arbitrage is undertaken to make a profit out of differences in prices of a security in two different markets. It is a highly skilled speculative activity. If the prices of a security differ substantially in the two stock markets, the speculator purchases the security in the market where it is cheap and sells it at a profit in another market where it is quoted high and thus makes huge profit. The speculator has to act very fast since the prices are highly sensitive and they may get equalised within a short span of time.
The arbitrage may be carried on between the two markets within the country or in two different countries. The former is called 'domestic arbitrage' and the latter 'foreign arbitrage'. Arbitrage ultimately helps in equalising the prices of securities at different places; hence, it is beneficial to market. The brokers who carry arbitrage activity are called arbitragers.
An auction is a mechanism utilised by the exchange to fulfil its obligation to a counter party member when a member fails to deliver good securities or make the payment. The stock exchange, in such cases, arranges to buy good securities through auction and deliver them to the buying broker or arranges to realise the cash and pay it to the selling broker.
7. At Best Order
It is an order from an investor for the purchase or sale of securities wherein the investor does not specify a price at which the purchase or sale of securities should be made by broker on his behalf. Such order must be executed by the broker at best possible price. The client may also fix a time frame within which the order has to be executed. e. g. "Buy 200 Reliance Industries at best".
8. Authorised Clerk
An authorised clerk is a representative appointed by a stock broker to assist him in the securities trading. A broker cannot remain present all the time on trading floor of stock exchange, hence he requires assistants to carry out trading activities on his behalf. As per the rules of the stock exchange, each broker can employ a specified number of authorised clerks to transact his business. They are also called 'member assistants'. At Bombay, Madras & Calcutta Stock exchanges the number of authorised clerks allowed by a broker are 5, 3 and 8 respectively. Generally, authorised clerks are given power of attorney to act on behalf of broker & hence they can sign on behalf of brokers.
9. Bad Delivery Cell
A delivery of shares turns out to be bad if there is a company objection on account of signature difference, or if shares are fake, forged or stolen etc. In such a case the investor can approach the bad delivery cell of stock exchange through his broker for correction or replacement with good delivery.
10. Bid and Offer
Bid refers to the price of a share which a prospective buyer is ready to pay for particular scrip. Offer is the price at which a share is offered for a sale on stock exchange.
Brokerage means the commission charged by a broker for purchase or sale of securities done through him. The maximum brokerage chargeable as stipulated by SEBI is at present 2.5 % of the trade value.
Bombay Stock Exchange has introduced BOLT. That is, BSE - On - Line - Trading - System for listed securities. Trading is order driven as quote driver system is discontinued. For this purpose BSE classified the listed securities into 5 categories. Viz. A, B1, B2, F, G and Z. Out of these A, B1 and B2 groups represent equity segment. Group F represents securities which have fixed income, 'G' group represents Government Securities whereas 'Z' represents those companies which failed to comply with listing norms or failed to redress investors' complaints or failed to comply with depository requirements. Trading of securities of listed companies of other exchanges is also permitted and these securities are categorised in 'Permitted Securities.'
13. 'Badla' or Carry Forward Trading
Carry Forward or 'Badla' refers to the trading in which the settlement of a transaction is postponed to the next settlement period on payment of some charges by way of interest known as Badla Charges. Carryover or Badla is a facility given to the speculator by the other party to carry forward the transaction from one settlement period to another. The scrips in specified categories (i.e. Group A) alone could be carried forward. Badla charges vary from period to period and are fixed fortnightly.
Bulls are those brokers of stock exchange who are very optimistic of the rise in prices of securities. Hence, they go on buying shares in expectation of selling them at higher prices later. Thus, in a bull market there will be excess of purchase over sales. Bulls are also called 'Tejiwallas'.
Bears are those member brokers of stock exchange who are always pessimistic in approach. They expect a fall in prices of securities. Hence, they go on selling securities. They are also called Mandiwallas. A Bearish market refers to a market where prices of shares are falling continuously where there are excess of sales over purchases.
16. Blank transfers
Blank transfers facilitate speculative activities through badla transactions. If a seller (or transferer) of security simply signs the transfer form without specifying the name of buyer (or transferee), it is called a blank transfer. Badla transactions involve temporary purchases and sales of securities. If they have to be registered, it involves lot of inconveniences due to registration fees, stamp duty, etc. Hence, to avoid such inconveniences blank transfers are increasingly used to carryover the transaction.
17. Circuit breakers
Its a mechanism by which Stock Exchanges temporarily suspend the trading in a security when its prices are volatile and tend to breach the price band.
Clearing is a process through which all transactions between members of stock exchange are settled through multilateral netting.
19. Company objection
For transfer of a security a transferer sends a scrip certificate along with the transfer deed to the company. In some cases the company refuses the registration of transfer on account of signature difference, or fake, forged or stolen shares. In such cases the company returns the documents sent along with a letter which is termed as a 'company objection'.
It refers to the process of holding entire supply of a particular security by an individual or a group of individuals with a view to dictating terms to the short sellers and earning more profits.
21. Clearing Settlement
Under this method, the transactions are cleared and settled through the clearing house. Usually those securities which are frequently traded and are usually in demand are cleared through the clearing house.
22. Client brokers
These brokers do simple braking business by acting as intermediaries between the buyers and sellers and they earn only brokerage for their services rendered to the clients.
The shares are called cum-bonus when a purchaser is entitled to receive the current bonus declared by company.
The share is described as cum-rights when a purchaser is entitled to receive the current-rights shares declared by the company.
25. 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 cannot be executed during the day, it gets cancelled automatically.
26. Discretionary order
It is an order placed by a client to buy or sell shares at whatever price the broker thinks reasonable. This is possible only when the client has complete faith on the broker.
The share is described as ex-bonus when a purchaser is not entitled to receive the current bonus, the right to which remains with the seller.
The share is described as ex-rights when a purchaser is not entitled to receive the current rights, the right of which remains with the seller.
29. Forward trading
Forward trading refers to trading where contracts traded today are settled at some future date at prices decided today.
30. Good-bad delivery
A share certificate together with its transfer form which meets all the requirements of title transfer from seller to buyer is called good delivery in the market.
Delivery of a share certificate, together with a deed to transfer, which does not meet requirements of title transfer from seller to buyer is called a bad delivery in the market.
31. Hand Delivery Settlement
Under this method, the delivery of securities and payment are affected within the time stipulated in the agreement or within 14 days from the date of contract whichever is earlier. Most of the transactions are conducted on the basis of hand delivery settlements.
32. Insider Trading
It means trading in a company's shares by a person who is associated with that company. As a result of his association he has a secret price sensitive information about the company such as expansion plans, financial results, takeover bid, bonus or right issue etc. He tries to exploit that information and maximise his profit through trading in the scrip of that company. It is a crime and hence prohibited by stock exchanges.
33. Jumbo certificate
A jumbo share certificate is a single composite share certificate issued by consolidating-a large number of market lots.
A jobber is a professional independent broker who deals in securities on his own behalf. Like brokers he does not purchase or sell securities on behalf of a client for a commission. Instead he purchases the securities in his own name and sells them out when the prices of those securities increase and thereby earn a profit. He is like a stockist of security of different companies. He buys securities as a owner, keeps them for a very short period and sells them for profit known as 'jobbers turn'. He works for a profit and not for a commission.
35. Lame ducks
Lame ducks are bear brokers (expecting decline in prices) who ultimately sell the securities ultimately at a loss by making wrong moves. They lose in market due to the wrong prediction that share prices will decline but in reality they increase. Generally, they contract to sell securities which they do not posses, therefore, they are caught in a wrong foot.
36. Limit order
It is an order for the purchase or sale of a scrip at a fix price specified by the client. e.g. "Sell 100 TISCO shares @ Rs. 280".
37. Market Lot
Market lot refers to the minimum number of shares of a particular security that must be transacted on the exchange. Market lot may be 10 shares, 20 shares, 50 shares or 100 shares. Multiples of the market lot may also be transacted. In demat scrips the market lot is 1 share.
38. No-delivery period
Whenever a book closure or record date is announced by a company, the Exchange sets a no-delivery period for that security. During this period, trading is permitted in that security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for corporate benefits is clearly determined.
39. Odd lot
A number of shares that are less than the market lot are known as odd lots. Under the scrip based delivery system, these shares are normally traded at a discount to the prevailing price for the marketable lot.
40. Order-driven trading
It is a trading initiated by buy I sell orders, from investors / brokers.
41. Over-the Counter trading
Trading in those stocks which are not listed on a stock exchange.
42. Open order
It is an order to buy or sell a security received from a client without fixing any time limit or price limit on the execution of the order. It is similar to discretionary order.
Pay-in day is the designated day on which the securities or funds are delivered / paid in by the members to the clearing house of the Exchange.
Pay-out is the designated day on which securities and funds are delivered I paid out to the members by the clearing house of the Exchange.
45. Price band
The daily / weekly price limits within which price of a security is allowed to rise or fall.
46. Price rigging (or Rigging the market)
When a person or persons acting in concert with each other collude to artificially increase or decrease the price of a security, that process is called price rigging or rigging the market. It is an undesirable activity since it prevents the free interplay of demand and supply. Stock exchanges and SEBI try to discourage such practice.
47. Quote-driven trading
Trading where brokers / market makers give buy I sell quote for a scrip simultaneously.
48. 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.
49. Rematerialisation of shares
It is the process through which shares held in electronic form in depository are converted into physical form.
50. Screen based trading
When buying / selling of securities is done using computers and matching of trades is done by a stock exchange computer.
It refers to the scrip-wise netting of trades by a broker after the trading period is over.
52. Settlement guarantee
Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades even if a party defaults to deliver securities or pay cash.
53. Splitting /Consolidation
The process of splitting shares that have a high face value into shares of a lower face value is known as splitting. The reverse process of combining shares that have a low face value into one share of higher value is known as consolidation.
54. Spot trading
Trading by delivery of shares and payment for the same on the date of purchase or on the next day.
55. Stop transfer
It is an instruction given by a registered holder of shares to the company to stop the transfer of shares in his name as a result of theft, misplacement, loss of share certificates.
Stags are those members in share market who neither buy nor sell securities in stock exchange. They simply apply for subscription to new issues expecting to sell them at a higher price later when the issues are quoted on stock exchange. Generally, stags buy new issues and sell them on allotment or even before allotment for a profit. Since they act fast they are called stags - a fast runner.
57. Spot delivery settlement
These transactions are to be settled by delivery and payment on the date of contract or on the next day.
58. Special delivery
Delivery and payment made anytime exceeding 14 days, but not exceeding 2 months, following the date of the contract as may be stipulated when entering into the bargain and permitted by the Governing Board or the President.
59. Stop Loss Order
It is an order by a client to sell as soon as the prices fall upto a particular level or to buy when the price rises up to a specified level. This is mainly to protect the clients against a heavy fall or rise in prices so that they may not suffer more than the pre-specified amount.
60. Trade guarantee
Trade guarantee is the guarantee provided by the clearing corporation for all trades that are executed on the exchange. In contrast, at the settlement guarantee, guarantees the settlement of trade after multilateral netting.
61. Transfer deed
A transfer deed is a form that is used for effecting transfer of shares or debentures and is valid for a specified period. It should be sent, to the company along with the share certificate for registering the transfer. The transfer deed must be duly stamped and signed by or on behalf of the transferor and transferee and complete in all respects.
62. Wash Sales
Wash sales is a kind of fictitious transaction through which a speculator is able to reap huge profit by creating a misleading picture in the market. He makes fictitious sale of a security and then makes a purchase of the same security at higher price through another broker. Thus, he creates a misleading opinion in the market as if the price of a security in question is rising. As a result of such false opinion, when the price of the security actually rises the speculator sells it to earn a good profit. Wash sale is a kind of cheating hence stock exchanges impose severe penalty on such sales.
These are the brokers who are fast and smart speculators. They quickly perceive changes in the trends in the market and trade fast to make profit. They are not generally caught in the wrong foot.