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.
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.
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.
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
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.
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
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.
Clearing : Clearing refers to the process by which all transactions
between members is settled through multilateral netting.
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.
Cum-bonus : The share is described as cum-bonus when a purchaser is
entitled to receive the current bonus.
Cum-rights : The share is described as cum-rights when a purchaser
is entitled to receive the current rights.
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.
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.
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.
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
Forward trading : Forward trading refers to trading where contracts
traded today are settled at some future date at prices decided today.
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.
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.
Jumbo certificate : A jumbo share certificate is a single composite
share certificate formed by consolidating/ aggregating a large number of market
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.
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.
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.
Order-driven trading : It is a trading initiated by buy/sell orders
Over-the-counter trading : Trading in those stocks which are not listed
on a stock exchange.
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 is the designated day on which securities and funds
are delivered / paid out to the members by the clearing house of the Exchange.
Price band : The daily/weekly price limits within which price of a
security is allowed to rise or fall.
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.
Quote driven trading : Trading where brokers/market makers give buy/
sell quote for a scrip simultaneously.
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.
Rematerialisation of shares : It is the process through which shares
held in electronic form in a depository are converted into physical form.
Screen based trading : When buying/selling of securities is done using
computers and matching of trades is done by a stock exchange computer.
Settlement : It refers to the scrip-wise netting of trades by a broker
after the trading period is over.
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.
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.
Spot trading : 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,.
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 a position that is squared off within the settlement.
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.
Transmission : Transmission is the lawful process by which the ownership
of securities is transferred to the legal heir/s of the deceased.
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.
SECURITIES AND EXCHANGE
BOARD OF INDIA
Printed and circulated in the interest of investors by
National Stock Exchange of India Ltd.