List of Terms relating to Indian Stock Exchange
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.
4. Arbitration
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.
5. Arbitrage
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.
6. Auction
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.
11. Brokerage
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.
12. BOLT
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.
14. Bulls
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'.
15. Bears
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.
18. Clearing
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'.
20. Cornering
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.
23. Cum-bonus
The shares are called cum-bonus when a purchaser is entitled to
receive the current bonus declared by company.
24. Cum-rights
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.
27. Ex-bonus
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.
28. Ex-rights
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.
34. Jobbers
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.
43. Pay-in
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.
44. Pay-out
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.
51. Settlement
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.
56. Stags
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.
63. Wolves
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.
