Definitions

Key Words to the Market

1. Authorized Person

“Authorized Person” (AP) means any person not being a member of a Stock Exchange who acts on behalf of a member-broker as an agent or otherwise for market access & assisting the investors in buying, selling or dealing in securities through such member-brokers.

2. Beneficial Owner

The beneficial owner is a natural person or persons who ultimately own, control or influence a client and/or persons on whose behalf a transaction is being conducted, and includes a person who exercises ultimate effective control over a legal person or arrangement.

3. Broker

A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.

4. Brokerage

Amount charged as a fee or commission by a broker.

5. Call Option

A call option is an option contract in which the holder (buyer) has the right (but not the obligation) to buy a specified quantity of a security at a specified price (strike price) within a fixed period of time (until its expiration).

6. Commodity Exchange

Commodities exchange also refers to the physical center where commodity trading takes place. In India, prominent commodity exchanges are Multi Commodity Exchange, National Commodity & derivative Exchange.

7. Contract note

A certificate issued by the broker, confirming the terms of a purchase or sale on a Stock Exchange.

8. Debenture

A type of fixed interest security usually issued by finance companies at a fixed rate of interest and for a fixed term, usually one to five years. The debenture is secured by a trust deed over an asset, or assets, of a company.

9. Derivatives

A derivative is a contract between two parties which derives its value/price from an underlying asset.

10. Demat account

In India, shares and securities are held electronically in a Dematerialized (or “Demat”) account, instead of the investor taking physical possession of certificates. A Dematerialized account is opened by the investor while registering with an investment broker (or sub-broker). The Dematerialized account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialized account for the purpose of transacting shares.

11. Dematerialization

Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the BO’s account with his DP.

12. Depository

A depository in a simple term means a place where something is deposit for storage and security. We have 2 depositories in India which are well known as NSDL (National securities depository limited) and CSDL (Central Depository Services (India) Limited).

13. Depository Participant

Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. It is a SEBI Registered Intermediary.

14. DIS

A Delivery Instruction Slip (DIS) is used by sellers of securities to instruct their depository participant to debit their demat account.

15. Equity Share

An equity share, commonly referred to as ordinary share also represents the form of fractional or part ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.

16. Ex-Date

The first business day after the record date for an entitlement or right. From this date, any shares purchased do not carry that entitlement or right.

17. Expiration Day

Each derivative contract entered into has an expiry period. Each contract expires on the last Thursday of the expiry month and on the very next day a new contract is introduced for trading after expiry of a contract.

18. FMC

Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority for commodity trading through exchanges, which is overseen by the Ministry of Finance, Govt. of India.

19. Forward

A forward contract is a private agreement between two parties giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. The assets often traded in forward contracts include commodities like grain, precious metals, electricity, oil, beef, orange juice, and natural gas, but foreign currencies and financial instruments are also part of today’s forward markets.

20. FPO

FPO (Follow on Public Offer) is a process by which a company, which is already listed on an exchange, issues new shares to the investors or the existing shareholders, usually the promoters. FPO is used by companies to diversify their equity base.

21. Future

An agreement/contract that obligates a buyer to purchase and a seller to sell a specified quantity of an underlying asset at a future date and at a price agreed when the contract was executed.

22. Index Future

Futures are derivatives where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. Index futures are futures contracts where the underlying is a stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

23. Indicies

A statistical measure of change in an economy or a securities market.

24. Initial Margin

Initial margin is the amount of margin, which must be deposited with the broker before taking position in derivatives.

25. IPO

An Initial Public Offering (IPO) is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies, looking to become publicly traded.

26. ISIN

ISIN (International Securities Identification Number) is a unique 12 digit alpha-numeric identification number allotted for a security (E.g.- INE383C01018). Equity-fully paid up, equity-partly paid up, equity with differential voting /dividend rights issued by the same issuer will have different ISINs.

27. KYC

Know your customer (KYC) is the process used by a business to verify the identity of its clients.

28. Lot Size

The quantity of units that can be contained in the smallest increment offered for sale or purchase.

29. Margin

The amount of funds/collateral that must be deposited when trading in securities and /or taking position in derivatives. The margin gets released as soon as pay-in obligations are fulfilled and/or derivatives positions are squared-up.

30. Market Order

A market order is an order to buy or sell a stock at the best available price. Generally, this type of order will be executed immediately.

31: MTM

Mark To Market Margin, is additional amount of cash you are required to deposit to your futures trading account after your futures position have taken sufficient losses to bring it below the “Maintenance Margin”. Futures traders are typically required to provide variation margin through “Margin Calls”.

32. Option

The right to buy or sell a commodity or security at an agreed price during a given period of time.

33. Open Interest

Open Interest is the total number of outstanding contracts held by market participants at the end of the day. Alternatively, it is the total number of futures contracts that have not yet been exercised (squared off) or expired.

34. Pay-in

To deposit the money and/or securities.

35. Pay in Day

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange.

36. Payout

To collect the money and/or securities.

37. Pay out Day

Pay out day is the day when the exchange makes payment or delivery of securities to the broker/

38. Preference share

Shares that entitle the shareholder to first claim on the profits of a company when it comes to dividend payments and which hold priority over ordinary shares for repayment of capital in the event that the company is liquidated. Preference shares rank below creditors and debenture holders and often carry no entitlement to vote at general meetings except under special circumstances.

39. Primary market

The primary market is the part of the capital market that deals with issuing of new securities. Companies, governments or public sector institutions can obtain funds through the sale of a new stock or bond issues through primary market.

40. Pool account

Member’s pool account is a Demat account opened by Trading Members and / or Clearing Members of stock/commodity exchanges. This account is opened to facilitate the pay-in and payout process.

41. Put Option

A put option is an option contract in which the holder (buyer) has the right (but not the obligation) to sell a specified quantity of a security at a specified price (strike price) within a fixed period of time (until its expiration).

42. Record Date

The date chosen by a company for the determination of the shareholders to whom an entitlement or right relating to its shares may apply.

43. Rematerialisation

Rematerialisation 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.

44. Share

Shares are units of ownership in stocks and partnerships.

45. SEBI

The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India.

46. Settlement Price

The last price paid for a contract on any trading day. Settlement prices are used to determine open trade equity, margin calls and invoice prices for deliveries.

47. Secondary market

In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid (originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly);

48. Stock market

The market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets.The stock market can be split into two main sections: the primary market and the secondary market.

49. Stamp duty

A duty levied by State Govt. on the purchase and sale of shares / derivatives.

50. Stop Loss Order

It is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop-loss is designed to limit an investor’s loss on a security position.

51. Stock Exchange

A market in which securities are bought and sold. The most prominent Stock Exchanges in India are National Stock Exchange, Bombay stock exchange and MCX Stock Exchange.

52. STT

Securities Transaction Tax (STT) is a tax payable in India on the value of securities transacted through a recognized stock exchange. The tax is not applicable on off-market transactions or currency transactions.

53. Sub Broker

A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

54. Trading Account

An account with a broker that enables an individual or other party to buy and sell securities.

55. UCC

In order to facilitate maintaining database of their clients and to strengthen the know your client (KYC) norms; all brokers have been mandated to use unique client code linked to the PAN details of the respective client which will act as an exclusive identification for the client.