Baby Bond (U.S)
A bond with a face value of less
than $1000 usually in $100 denominations.
Back office
The part of a firm that is responsible for post-trade
activities. Depending upon the organisational structure of the firm, the back
office can be a single department or multiple units (such as documentation,
risk management, accounting or settlements). Some firms have combined a portion
of these responsibilities, usually found in the back office, particularly those
related to risk management, into what they term as a middle office function.
Backwardation/Ulta Badla/Undha Badla
The payment of money charges made by a seller of shares
which he borrows to deliver against his sale. These charges become payable only
when there are more sellers who are not in a position to deliver against their
sale. These charges become payable to the buyer, when the seller is not in a
position to deliver the documents to the buyers who demand delivery.
Badla
Carrying forward of transactions from one settlement period
to another without effective delivery. This is permitted only in specified
securities and is done at the making up price which is usually the closing
price of the last day of settlement.
Badla Charge/ Contango
Consideration or interest paid to the seller by the buyer
for carrying over a transaction from one settlement period to another.
Badliwalas
A financier who lends money to both buyers and sellers of
shares when they are not able to pay or deliver.
Bail out of issue
When the public issue do not get good response from the
public or fails to garner minimum subscription ,the issuer or promoters
approaches the financiers or some persons to arrange subscription to bail out
the issue for consideration of buy-back shares subsequent from the financiers
at higher price or compensating the financier by payment of interest on the
amount of the subscription money paid in the public issue.
Balance Sheet
An accounting statement of a company’s assets and
liabilities, provided for the benefit of shareholders and regulators. It gives
a snapshot, at a specific point of time, of the assets that the company holds
and how the assets have been financed.
Balanced fund
Funds which aim to provide both
growth and regular income as such schemes invest both in equities and fixed
income securities in the proportion indicated in their offer documents.
Bancassurance
The phenomenon whereby a
financial institution combines the selling of banking products and insurance
products through the same distribution channel. Popular in the early 1990s
bancassurance rested on the premise that it is easy to cross-sell banking and
insurance services because customers feel confident buying insurance from the
same institution where they keep their savings.
Band Ke Bhao
Unauthorized trading in
securities done outside official hours.
Bankers acceptance
A short-term credit investment created by a non-financial
firm and guaranteed by a bank to make payment. Acceptances are traded at
discounts from face value in the secondary market
Bank investment contract
A security with an interest rate guaranteed by a bank. It
provides a specific yield on a portfolio over a specified period.
Banker to an issue
A scheduled bank carrying on all
or any of the issue related activities namely acceptance of application and
application monies; acceptance of allotment or call monies; refund of
application monies; and payment of dividend or interest warrants.
Basis
In a futures market, basis is defined as the cash price (or
spot price) of whatever is being traded minus its futures price for the
contract in question. It is important because changes in the relationship
between cash and futures prices affect the values of using futures as a hedge.
A hedge, however, will always reduce risk as long as the volatility of the
basis is less than the volatility of the price of whatever is being hedged.
Basis Point
One hundredth of a percentage point. Basis points are used
in currency and bond markets where the size of trades mean that large amounts
of money can change hands on small price movements . Thus if the yield on a
Treasury bill rose from 5.25% to 5.33% the change would have been eight basis
points.
Basis Risk
The risk that the relationship between the prices of a
security and the instrument used to hedge it will change, thereby reducing the
effectiveness of the hedge. In other words ,risk of varying fluctuations of the
spot and the futures price between the moment at which a position is opened and
the moment at which it is closed.
Basis of Allotment
An allotment pattern of an issue among different categories
of applicant
Bear
A pessimist market operator who
expects the market price of shares to decline. The term also refers to the one
who has sold shares which he does not possess, in the hope of buying them back
at a lower price, when the market price of the shares come down in the near
future.
Bear Hug
A variety of takeover strategy
that seeks to hurry target company managements to recommend acceptance of a
tender offer in a short period of time.
Bear Market
A weak or falling market
characterized by the dominance of sellers.
Bear Trap
A false signal indicating that
the rising trend of a stock or index has reversed when in fact it has not. This
can occur during a bear market reversal when short sellers believe the markets
will sink back to its declining ways. If the market continues to rise, the
shorters get trapped and are forced to cover their position at higher prices.
Bearer Securities/Bearer Bonds
Securities which do not require
registration of the name of the owner in the books of the company. Both the
interest and the principal whenever they become due are paid to anyone who has
possession of the securities. No endorsement is required for changing the
ownership of such securities.
Behavioral economics
Combination of psychology and
economics that investigates what happens in markets in which some of the agents
display human limitations and complications (i.e. irrational behavior).
Bellweather
A security that is seen as a significant indicator of the
direction in which a market’s price is moving.
Bench Mark
Security used as the basis for
interest rate calculations and for pricing other securities. Also denotes the
most heavily traded and liquid security of a particular class
Benchmark index
Indicators used to provide a
point of reference for evaluating a fund’s performance
Beneficial owner
The true owner of a security.
Registered holder of the shares may act as a nominee to the true
shareholders/owners.
Benefit cost ratio
A ratio attempting to clearly
identify the relationship between the cost and benefits of a proposed project.
This ratio is used to measure both quantitative and qualitative projects, as
sometimes benefits and costs cannot be measured exclusively on financial terms.
Beta
A measure of the volatility of a
stock relative to the market index in which the stock is included. A low beta
indicates relatively low risk; a high beta indicates a high risk.
Bid
An offer of a price to buy as in
an auction. Business on the Stock Exchange is done through bids. Bid also
refers to the price one is willing to pay for a security.
Bid Spread
The difference between the stated
and /or displayed price at which a market maker is willing to sell a security
and the price at which he is willing to buy it.
Bid – Ask spread
The difference between the bid
price and the ask price.
Bilateral netting
An arrangement between two
parties in which they exchange only the net difference in their obligations to
each other. The primary purpose of netting is to reduce exposure to
credit/settlement risk.
Black-Scholes model
A mathematical model that
provides a valuation technique for options. The model was adapted to provide a
framework for valuing options in futures contracts.
Blank Transfer
Where the name of the transferee
is left blank on share transfer form, it constitutes a blank transfer. A person
depositing shares with a stock broker for immediate or eventual sale, has to
sign a blank transfer form. It is also done when shares are mortgaged, so that
in the event of non payment the mortgager can fill in his own name in the
transferee column and sell the share.
Block Trading
Buying and selling a block of securities usually takes
place when restructuring or liquidating a large portfolio.
Blow Out
A security offering that sells out almost immediately.
Blue Chip
The best rated shares with the
highest status as investment based on return, yield, safety, marketability and
liquidity.
Blue Sky Laws (U.S)
Laws passed by the states in the
U.S. to protect investors. The term traces its origin to a remark made by a
Kansas legislator that unless a state passed effective legislation promoters
would try to sell shares in the blue sky to unsuspecting investors.
Boiler Room (U.S)
It is a practice of using high
pressure sales tactics.This practice is sometimes used by stock brokers who try
to sell investors the firm’s house stock. A broker using boiler room tactics
only gives customers promising information about the company and discourages
them from doing any outside research.
Bond
A negotiable certificate
evidencing indebtedness - a debt
security or IOU, issued by a company, municipality or government agency. A bond
investor lends money to the issuer and, in exchange, the issuer promises to
repay the loan amount on a specified maturity date. The issuer usually pays the
bondholder periodic interest payments over the life of the loan.
Bond Trust
Public unit trust which invests
in government fixed interest or corporate fixed interest securities and
investments.
Bonus Shares
Shares issued by companies to
their shareholders free of cost by capitalization of accumulated reserves from
the profits earned in the earlier years.
Book building process
A process undertaken by which a demand for the securities
proposed to be issued by a corporate body is elicited and built up and the
price for such securities is assessed for the determination of the quantum of
such securities to be issued by means of a notice, circular, advertisement,
document or information memoranda or offer document
Book Closure
The
periodic closure of the Register of Members and Transfer Books of the company,
to take a record of the shareholders to determine their entitlement to
dividends or to bonus or right shares or any other rights pertaining to shares.
Book Runner
A Lead Merchant Banker who has
been appointed by the issuer company for maintaining the book. The name of the
Book Running Lead Manager will be mentioned in the offer document of the Issuer
Company.
Book Value
The net amount shown in the books
or in the accounts for any asset, liability or owners’ equity item. In the case
of a fixed asset, it is equal to the cost or revalued amount of the asset less
accumulated depreciation. Also called carrying value. The book value of a firm
is its total net assets, i.e. the excess of total assets over total liabilities
Boom
A condition of the market
denoting increased activity with rising prices and higher volume of business
resulting from greater demand of securities. It is a state where enlarged
business, both investment and speculative, has been taking place for a
sufficiently reasonable period of time.
Breadth of the Market
The number of securities listed
on the market in which there is regular trading.
Break
A rapid and sharp decline in a
security or index.
Break Even Point
The
stock price (or price) at which a particular strategy of transaction neither
makes nor loses money. In options, the result is at the expiration date in the
strategy. A dynamic break-even point changes as time passes.
Broad based Fund (sub account)
A fund which has at least 20 shareholders and no single
investor holds more than 10% of shares and units of the Fund. In case, if any
investor holds more than 10% of shares or units of the fund, then it should be
broad based.
Broker
A member of a Stock Exchange who acts as an agent for
clients and buys and sells shares on their behalf in the market. Though
strictly a stock broker is an agent, yet for the performance of his part of the
contract both in the market and with the client, he is deemed as a principal, a
peculiar position of dual responsibility.
Brokerage
Commission
payable to the stockbroker for arranging sale or purchase of securities. Scale
of brokerage is officially fixed by the Stock Exchange. Brokerage scales fixed
in India are the maximum chargeable commission.
Broker dealer
Any person, other than a bank
engaged in the business of buying or selling securities on its own behalf or
for others.
Bubble
A speculative sharp rise in share
prices which like the bubble is expected to suddenly burst.
Bucket Shop (U.S)
A fraudulent brokerage firm that uses aggressive telephone
sales tactics to sell securities that the brokerage owns and wants to get rid
of. The securities that they sell are typically poor investment opportunities,
almost always penny stocks.
A brokerage that makes trades on a client’s behalf and
promises a certain price. The brokerage, however, waits until a different price
arises and then makes the trade, keeping the difference as profit.
A stock brokerage operation in
which the broker accepts the client’s money without ever buying the stock
ordered. Instead the money is used for another purpose, the broker gambling
that the customer is wrong and that the market price will decline and the stock
can be bought at a lower price.
Bucketing
A situation where, in an attempt to make a short-term
profit, a broker confirms an order to a client without actually executing it.
If the eventual price that the order is executed at is higher than the price
available when the order was submitted, the customer simply pays the higher
price. On the other hand, if the execution price is lower than the price
available when the order was submitted, the customer pays the higher price and
the brokerage firm pockets the difference. It also means directly or indirectly
taking the opposite side of client’s order into the brokers own account or into
an account in which the broker has interest, without open and competitive
execution of the order on an exchange.
Bull
A market player who believes prices will rise and would,
therefore, purchase a financial instrument with a view to selling it at a
higher price. Opposite of a bear.
Bull Market
A rising market with abundance of buyers and relatively few
sellers.
Bulldog Bond
A bond denominated in sterling but issued by a non British
borrower.
Buoyancy
A rising trend in prices.
Business Day
A day on which the Stock Exchange is open for business and
trading in securities.
Butterfly spread
An option strategy involving the simultaneous sale of an at
the money straddle and purchase of an out of the money strangle. Potential
gains will be seen if the underlying remains stable while the risk is limited
should the underlying move dramatically. It’s also the simultaneous buying and
selling of call options at different exercise prices or at different expiry
dates.
Buy back
The repurchase by a company of its own stock or bonds
Buyer’s Comparison Memo/Objection Statement
Since normally comparison memos are only issued to the
seller, the buyer figuring in the memo may not have any idea about the
rejection by the computer of that transaction till the seller contacts him.
Therefore, he is issued a Buyers Comparison Memo.
Buying - In
When a seller fails to deliver shares to a buyer on the
stipulated date, the buyer can enforce delivery by buying - in against the
seller in an auction.
Buy on margin
To buy shares with money borrowed from the stockbroker, who
maintains a margin account for the customer.
