CEDEL
One of the two major
organizations in the Eurobond market which clears or handles the physical
exchange of, securities and stores securities. Based in Luxembourg, the company
is owned by several shareholding banks and operates through a network of
agents.
Calendar spread
The simultaneous sale and
purchase of either calls or puts with the same strike price but different expiration
months.
Call Money
The unpaid installment of the
share capital of a company, which a shareholder is called upon to pay.
Call option
An agreement that gives an
investor the right, but not the obligation, to buy an instrument at a known
price by a specified date. For this privilege, the investor pays a premium,
usually a fraction of the price of the underlying security.
Capital Asset Pricing Model (CAPM)
An economic theory that describes
the relationship between risk and expected return and serves as a model for the
pricing of risky securities. The CAPM asserts that the only risk that is priced
by rational investors is systematic risk, because it cannot be eliminated by
diversification. The CAPM says that the expected return of a security or a portfolio
is equal to the rate on a risk-free security plus a risk premium.
Capital Gain Distribution
Profits distributed to unit
holders / shareholders resulting from the sale of securities held in the fund’s
portfolio for more than one year.
Carry Over Margin
The margin fixed by the Stock
Exchange and payable by the members for carrying over the transactions from one
settlement period to another.
Cash List
List of non-specified securities,
traded usually for hand delivery and also for special delivery and spot
delivery.
Cash Market
A market for sale of security
against immediate delivery, as opposed to the futures market.
Cash Settlement
The settlement provision on some
options and futures contracts that do not require delivery of the underlying
security. For options, the difference between the settlement price on the
underlying asset and the option’s exercise price is paid to the option holder
at exercise. For futures contracts, the exchange establishes a settlement price
on the final day of trading and all remaining open positions are marked to
market at that price.
Cats and Dogs (U.S)
Stocks in companies that are
small, new, poorly financed or in trouble.
CDSC (Contingent deferred sales charge)
A type of back end load sales
charge, a contingent deferred sales charge is a fee charged when shares are
redeemed within a specific period following their purchase. These charges are
usually assessed on a sliding scale, with the fee reduced each year during
which the shares are held.
Central Listing Authority
The authority set up to address the issue of multiple
listing of the same security and to bring about uniformity in the due diligence
exercise in scrutinising all listing applications on any stock exchanges. The
functions include processing the application made by any body corporate, Mutual
Fund or collective investment scheme for the letter of recommendation to get
listed at the stock exchange, making recommendations as to listing conditions
and any other functions as may be specified by SEBI Board from time to time.
Certificate of Deposit
A negotiable certificate issued by a bank, usually for a
period of one month to a year, as evidence of an interest bearing time deposit.
This may also be offered at a discount.
Chalu Upla
Adjustment of position between two brokers either to avoid
margin or to cross the trading or exposure limit.
Chartist analysis
Using charts of financial asset price movements (often with
the aid of additional descriptive statistics) to try to infer the likely course
of future prices and thus construct forecasts and trading strategies.
Cheapest to Deliver Issue
The acceptable Treasury security
with the highest implied repo rate. It is the rate that a seller of a futures
contract can earn by buying an issue and then delivering it at the settlement
date.
Chinese walls
Artificial barriers to the flow
of information set up in large firms to prevent the movement of sensitive
information between departments.
Churning
An unethical practice employed by
some brokers to increase their commissions by excessively trading in a client’s
account. In the context of the stock market, churning refers to a period of
heavy trading with few sustained price trends and little movement in stock
market indices.
Circuit Breaker
A system to curb excessive
speculation in the stock market, applied by the Stock Exchange authorities,
when the index spurts or plunges by more than a specified per cent. Trading is
then suspended for some time to let the market cool down.
Circular trading
A fraudulent trading scheme where sell or buy orders are
entered by a person who knows that the same number of shares at the same time
and for the same price either have been or will be entered. These trades do not
represent a real change in the beneficial ownership of the security. These
trades are entered with the intention of raising or depressing the prices of
securities.
Clean Float
Where there is no official intervention – the price is
permitted to vary in line with the market forces
Clearing
Settlement or clearance of accounts, for a fixed period in
a Stock Exchange.
Clearing House
A department of an exchange or a separate legal entity that
provides a range of services related to the clearance and settlement of trades
and the management of risks associated with the resulting contracts. A clearing
house is often central counterparty to all trades, that is, the buyer to every
seller and the seller to every buyer.
Clearing member
A member of a clearing corporation or clearing house of the
derivatives exchange or derivatives segment of an exchange, who may clear and
settle transactions in securities.
Close-out-netting
An arrangement to settle all contracted but not yet due
obligations to and claims on a counterparty by one single payment, immediately
upon the occurrence of one of the defined events of default.
Closing Out
Where a party to a contract does not make delivery against
sale or payment against delivery of documents, the other party can close out
the transaction against the defaulting party. The gain or loss arising from the
closing out is borne by the defaulter.
Close-ended Fund
A type of investment company that has a fixed number of
shares which are publicly traded. The price of a closed end share fluctuates
based on investor supply and demand. Closed ended funds are not required to
redeem shares and have managed portfolios.
Closing Price
The rate at which the last transaction in a security is
struck before the close of the trading hours.
Coercive Tender Offer
A tender offer that exerts
pressure on target shareholders to tender early. This pressure may come in the
form of preferential compensation for early tendering shareholders. Changes in
securities laws have limited the effectiveness of such tender offers.
Collar Agreement
Agreed upon adjustments in the
number of shares offered in a stock-for-stock exchange to account for
fluctuations in stock prices prior to the completion of the deal.
Collateralised Mortgage Obligation (CMO)
A generic term for a security backed by real estate
mortgages. CMO payment obligations are covered by interest and /or principal
payments from a pool of mortgages. In addition to its generic meaning, CMO
usually suggest a non governmental issue.
Collective Investment Management Company
A company incorporated under the provisions of the
Companies Act, 1956 and registered with SEBI under the SEBI (Collective
Investment Schemes) Regulations, 1999, whose object is to organise, operate and
manage a Collective Investment Scheme.
Collective investment scheme (CIS)
Any scheme or arrangement made or offered by any company
under which the contributions, or payments made by the investors, are pooled
and utilized with a view to receive profits, income, produce or property, and
is managed on behalf of the investors is a Collective Investment Scheme.
Investors do not have day to day control over the management and operation of
such scheme or arrangement.
Commercial Paper
A short term promise to repay a fixed amount that is placed
on the market either directly or through a specialized intermediary. It is
usually issued by companies with a high credit standing in form of a promissory
note redeemable at par to the holder on maturity and therefore does not require
any guarantee.
Common stock
Units of ownership of a public corporation. Holders of
common stock typically have voting rights and receive dividends, but there is
no guarantee of dividend payment.
Competitive Bid
An offer made by a person other than the acquirer who has
made the first public announcement.
Composite issues
An issue of securities by a listed company on a public-cum
rights basis offered through a single offer document wherein the allotment for
both public and rights component of the issue is proposed to be made simultaneously.
Compulsory delisting
Permanent
removal of securities of a listed company from a stock exchange as a penalizing
measure at the behest of the stock exchange for not making submissions /
complying with various requirements set out in the Listing agreement within the
time frames prescribed.
Confirmation process
The procedure for verifying trade details with a
counterparty. This is generally done by exchanging via fax or mail a document
(i.e. a confirmation) identifying the trade details and any governing legal
documentation and verifying the accuracy of the information provided by the
counterparty (i.e. matching).
Constituent Subsidiary General Ledger (SGL)
account
A constituent SGL account is an account held by an
intermediary at Reserve Bank of India (RBI) on behalf of its constituents who
have empowered the said intermediary to carry out various transactions on their
behalf. In this account only constituent transactions can take place and under
no circumstances the intermediary will use this account for proprietary
transactions.
Continuous disclosure
Procedure where certain companies are required to make
disclosures on a continuing basis of their business activities by filing
documents.
Continuous net settlement
Automated book-entry accounting
system that centralizes the settlement of compared security transactions and
maintains an orderly flow of security and money balances.
Contract Month
The month in which futures
contracts may be settled by making or accepting delivery.
Contract Note
A note issued by a broker to his
constituent setting out the number of securities bought or sold in the market
along with the rate, time and date of contract.
Control of management
The right to appoint directly or
indirectly or by virtue of agreements or in any other manner majority of
directors on the Board of the target company or to control management or policy
decisions affecting the target company
Controlling interest
Holding a sufficiently large
number of shares in a company so as to be able to control its prices.
Convergence
Narrowing of the difference
between the futures contract and the value of the underlying asset during the
final days of the contract
Conversion Price
The price at which a convertible
instrument is converted into shares of the company.
Conversion Ratio
The number of shares which may be
acquired upon the conversion of a convertible instrument. The ratio is
calculated as instrument’s principal amount divided by conversion price.
Convertible Bond
A bond giving the investor the
option to convert the bond into equity at a fixed conversion price or as per a
pre-determined pricing formula.
Corners
A corner occurs when a person
buys up a substantial volume of a security knowing that other market participants
will be forced to buy from him at a higher price. An example of this would be
when the other market participants hold short positions in the security which
must be settled. A similar practice is the “abusive squeeze” where a person
takes advantage of a shortage in an asset by controlling the demand side and
creating artificial prices.
Corporate Governance
The way in which companies run
themselves, in particular the way in which they are accountable to those who
have a vested interest in their performance, especially their shareholders.
Corporate raiders
A cash rich person who may either by himself or through the
company he controls buys in very large numbers of equity shares of a target
company with a view to taking over that company.
Corporate restructuring
Involves making radical changes in the composition of the
businesses in the company’s portfolio.
Correction
Temporary reversal of trend in share prices. This could be
a reaction (a decrease following a consistent rise in prices) or a rally (an
increase following a consistent fall in prices).
Counter party risk
The risk that between the time a
transaction has been arranged and the time of actual settlement, the
counterparty to the transaction will fail to make the appropriate payment.
Coupon
The interest paid on a bond expressed as a percentage of
the face value. If a bond carries a fixed coupon, the interest is paid on an
annual or semi-annual basis. The term also describes the detachable certificate
entitling the bearer to payment of the interest.
Coupon Rate
The interest rate stated on the face of coupon.
Cover
(1)
To take out a forward foreign exchange contract.
(2)
To close out a short position by buying the currency or
securities which have been sold.
(3)
To insure.
(4)
The purchase or sale of futures to offset a previously
established short or long position.
Covered call option writing
A strategy in which one sells
call options while simultaneously owning an equivalent position in the
underlying security.
Covered put option writing
A strategy in which one sells
puts and simultaneously is short of an equivalent position in the underlying
security.
Covered warrant
A stock, basket, or index warrant
issued by a party other than the issuer of the underlying stock(s) and secured
by the warrant issuer’s holding in the underlying securities or the warrant
issuer’s general credit standing.
Credit rating
Credit ratings measure a
borrower’s creditworthiness and provide an international framework for
comparing the credit quality of issuers and rated debt securities. Rating
agencies allocate three kinds of ratings: issuer credit ratings, long-term
debt, and short-term debt. Issuer credit ratings are amongst the most widely
watched. They measure the creditworthiness of the borrower including its
capacity and willingness to meet financial needs. The top credit rating issued
by the main agencies - Standard & Poor’s, Moody’s and Fitch IBCA - is AAA
or Aaa. This is reserved for a few sovereign and corporate issuers. Ratings are
divided into two broad groups - investment grade and speculative (junk) grade.
Credit rating agency
Credit rating agency means a body
corporate which is engaged in, or proposes to be engaged in, the business of
rating of securities offered by way of public or rights issue.
Credit Risk
The risk that a counterparty will not settle an obligation
for full value, either when due or at any time thereafter. Credit risk includes
pre-settlement risk (replacement cost risk) and settlement risk (Principal
risk).
Cross collateralization
Practice of using assets as back up or secondary collateral
for debt other than the debt they are primarily pledged for. A network of cross
collateralization may facilitate an increase in borrowing or a reduction in
borrowing cost.
Cross hedging
Practice of altering the risk characteristic of a
predetermined position in one cash good by taking out a position in a future or
forward contract which is based on a good which differs significantly from that
of the initial cash position.
Cross margining
An arrangement between and among
custodial and clearing organizations to partially offset excess risk-adjusted
margin deposited with one entity against margin requirements with another.
Cross-Rate (U.S)
The exchange rate between
currencies A and C which is derived from the rate between A and B and the rate
between B and C. Thus if $ 1 = DM 2.50 and $1=Yen 250, the cross rate between the
DM and Yen is DM 1= Yen 100.
Cum
Means ‘with’ A cum price includes
the right to any declared dividend (cd) or bonus (cb).
Cumulative Convertible Preference Shares
A type of preference shares where
the dividend payable on the same accumulates, if not paid. After a specified
date, these shares will be converted into equity capital of the company.
Cumulative Preference Shares
A type of preference shares on
which dividend accumulates if not paid. All arrears of preference dividend have
to be paid out before paying dividend on equity shares.
Current Asset
Cash or an item of value expected
to be converted into cash within one year or one operating cycle, whichever is
longer.
Current Liability
Accounting term for money payable
within the current accounting year, on account of trade creditors, taxation,
dividends, etc. To these are often added provisions, i.e. any charges or
liabilities (various government duties, disputed claims, etc.) which the
company may have to settle within the accounting year.
Current Ratio
Current ratio measures a
company’s current assets relative to its current liabilities. This gives an
indication of its abilities to meet short-term liabilities; the higher the
ratio, the more liquid the company.
Current Yield
A measure of the return to a
bondholder calculated as a ratio of the coupon to the market price. It is
simply the annual coupon rate divided by the clean price of the bond.
Custodian
An organization, usually a bank
or any other approved institutions, that hold the securities and other assets
of mutual funds and other institutional investors.
Custody risk
The risk of loss of securities
held in custody occasioned by the insolvency, negligence or fraudulent action
of the custodian or of a sub-custodian.
