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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. It is a quasi-judicial
process that is faster and is an inexpensive way of resolving a dispute. The Exchange
facilitates the process of arbitration between the members and their clients. The
disputes between the parties are resolved through an arbitration in accordance with
the bye-laws of the exchange.
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Auction : An auction is a mechanism utilised
by the Exchange to fulfill its obligation to a counter party member when a member
fails to deliver good securities or make the payment. Through auction, the Exchange
arranges to buy good securities and deliver them to the buying broker or arranges
to realise the cash and pay it to the selling broker.
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Bad delivery cell : When a delivery of shares
turns out to be bad because of company objection etc., the investor can approach
the bad delivery cell of the stock exchange through his broker for correction or
replacement with good delivery.
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Bid and offer : Bid is the price of a share
a prospective buyer is prepared to pay for particular scrip. Offer is the price
at which a share is offered for sale.
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Brokerage : Brokerage is the commission charged
by the broker for purchase/sale transaction through him. The maximum brokerage chargeable,
as stipulated by SEBI, is at present 2.5% of the trade value.
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Carry forward trading : Carry forward trading
has evolved in response to local needs in India and 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 (known as ‘undha badla’) in which the short seller
pays a charge for borrowing securities.
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Circuit breakers : It is a mechanism by which
Exchanges temporarily suspend the trading in a security when its prices are volatile
and tend to breach the price band.
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Clearing : Clearing refers to the process by
which all transactions between members is settled through multilateral netting.
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Company objection : An investor sends the certificate
along with the transfer deed to the company for transfer. In certain cases the registration
is rejected because of signature difference, or if the shares are fake, forged or
stolen etc;. In such cases the company returns the shares along with a letter which
is termed as a company objection.
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Cum-bonus : The share is described as cum-bonus
when a purchaser is entitled to receive the current bonus.
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Cum-rights : The share is described as cum-rights
when a purchaser is entitled to receive the current rights.
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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.
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Dematerialisation: Dematerialisation is the
process by which shares in the physical/paper form are cancelled and credit in the
form of electronic balance is maintained on highly secure systems at the depository.
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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.
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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.
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Forward trading : Forward trading refers to
trading where contracts traded today are settled at some future date at prices decided
today.
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Good-bad delivery : A share certificate together
with its transfer form which meet 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 of transfer, which does not meet requirements of title transfer
from seller to buyer is called a bad delivery in the market.
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Insider trading : 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.
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Jumbo certificate : A jumbo share certificate
is a single composite share certificate formed by consolidating/ aggregating a large
number of market lots.
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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. In Demat Scrips the market lot is 1 share.
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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.
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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.
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Order-driven trading : It is a trading initiated
by buy/sell orders from investors/brokers.
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Over-the-counter trading : Trading in those
stocks which are not listed on a stock exchange.
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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.
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Pay-out : Pay-out is the designated day on which
securities and funds are delivered / paid out to the members by the clearing house
of the Exchange.
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Price band : The daily/weekly price limits within
which price of a security is allowed to rise or fall.
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Price rigging : When a person or persons acting
in concert with each other collude to artificially increase or decrease the prices
of a security, that process is called price rigging.
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Quote driven trading : Trading where brokers/market
makers give buy/ sell quote for a scrip simultaneously.
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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.
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Rematerialisation of shares : It is the process
through which shares held in electronic form in a depository are converted into
physical form.
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Screen based trading : When buying/selling of
securities is done using computers and matching of trades is done by a stock exchange
computer.
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Settlement : It refers to the scrip-wise netting
of trades by a broker after the trading period is over.
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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.
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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.
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Spot trading : Trading by delivery of shares
and payment for the same on the date of purchase or on the next day.
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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,.
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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.
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Trading for delivery : Trading conducted with
an intention to deliver shares as opposed to a position that is squared off within
the settlement.
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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.
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Transmission : Transmission is the lawful process
by which the ownership of securities is transferred to the legal heir/s of the deceased.
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The readers are requested to refer to the specific Acts, rules and regulations for
exact details and clarifications and are reminded that this booklet does not purport
to explain the laws or rules in force, with respect to any particular fact pattern.
Answers to questions involving particular facts depend upon interpretations, administrative
decisions and court actions. While every effort has been made to ensure the accuracy
and completeness of the information contained, the Board assumes no liability for
any errors or omission of information given above.
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Published by
SECURITIES AND EXCHANGE
BOARD OF INDIA
Printed and circulated in the interest of investors by
National Stock Exchange of India Ltd. |