Key Terms

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 for sale.

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 securities.

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 seller.

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 lots.

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 from investors/brokers.

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.

Published by SECURITIES AND EXCHANGE BOARD OF INDIA Printed and circulated in the interest of investors by National Stock Exchange of India Ltd.

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Prevent Unauthorised transactions in your account. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 01, 2020. Update your email id and mobile number with your stock broker / depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge as well as for mobile no and for email id updation.Receive information of your transactions directly from Exchange on your mobile/email at the end of the day. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month........... Issued in the interest of Investors".

KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.

No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account


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