Account closure (depositor account)
The closure of beneficiary and
pool accounts by the investor and the clearing member or at the discretion of
the participant, if the client has defaulted in its obligations towards the
participant.
Accounts Payable
A current liability showing the
amounts due to others within a period of one year when such liability resulted
from the purchase or manufacturing of inventory.
Accounts Receivable
Any money due to a business for
merchandise or securities that it has sold or for services it has rendered.
This is a key determinant in analyzing a company’s liquidity.
Accreting
A description applicable to a
range of instruments, e.g. caps, swaps, collars and swaptions, where the
notional amount on which the instrument is based increases successively during
its life.
Accrued Interest
The interest accruing on a
security since the previous coupon date. If a security is sold between two
payment dates, the buyer usually compensates the seller for the interest
accrued, either within the price or as a separate payment.
Acid Test Ratio
The value of cash equivalents and
accounts receivable (the quick assets) divided by current liabilities. Also
known as quick asset ratio or liquidity ratio, it is a measurement of corporate
liquidity.
Acquirer
Any individual/company/any other legal entity, which
intends to acquire or acquires substantial quantity of shares or voting rights
of target company or acquires or agrees to acquire control over the target
company along with the persons acting in concert.
Active portfolio Strategy
A strategy that uses available information and forecasting
techniques to seek a better performance than a portfolio that is simply
diversified broadly.
Adhoc Margin
Margin collected by the Stock Exchange from the members
having unduly large outstanding position or the margin levied on volatile
scrips based on adhoc basis keeping in view the risk perspective.
Adjustable Peg
Term for an exchange rate regime
where a country’s exchange rate is pegged (i.e. fixed) in relation to another
currency (normally the dollar), but where the rate may be changed from time to
time.
Adjusted beta
The estimation of a security’s future beta, which is
derived from historical date, but is modified assuming that the security’s real
beta has tendency to move towards the market average of one.
Admission to Dealing
The process of granting permission to the securities of a
company to be listed in a Stock Exchange and to provide trading facilities for
the securities in the market.
Advance/Decline line
A technical analysis tool
representing the total of differences between advances and declines of security
prices. The advance/decline line is considered the best indicator of market
movement as a whole. Stock indices such as Dow-Jones Industrial Average only
tell us the strength of 30 stocks where as the Advance/Decline line provides
much more insight.
Adviser
A financial planner or financial intermediary who offers
advice on personal financial matters. Advisers may be paid an upfront or an
ongoing commission for the investments that they recommend.
Agency Orders
Orders that a broker dealer executes for the account of a
customer with another professional or retail investor.
Allotment Advice
A letter sent to the successful applicant by the company
stating allotment of shares or debentures or other securities against his
application. The advice is not negotiable in the market.
Allotment Letter
Document of title issued to investors by companies stating
allotment of shares/debentures /other securities to applicants subscribing for
such securities or in pursuance of certain contracts entered into in that
behalf. These letters are negotiable in the market.
Alpha
In a Jensen Index, a factor to represent the portfolio’s
performance that diverges from its beta, representing a measure of the
manager’s performance.
AMBI- Association
of Merchant Bankers in India
American Depository Receipts (ADR) (U.S.)
A certificate issued in the United States in lieu of a
foreign security. The original securities are lodged in Bank/Custodian abroad,
and the American Depository Receipts (ADRs) are traded in the US for all
intents and purposes as if they were a domestic stock. An ADR dividend is paid
in US dollars, so it provides a way for American investors to buy foreign
securities without having to go abroad, and without having to switch in and out
of foreign currencies.
American Option
A put or call that can be exercised at any time prior to
expiration. Most listed stock options, including those on European exchanges
are US style options. Important exceptions are certain low strike price options
and options on shares with restricted transferability. Most listed options on
other instruments are also US-style options, but a number of European style
options have been introduced in recent years, particularly on stock indices and
currencies.
AMFI- Association of Mutual Funds in India
Analyst
A firm / company / an individual
who is engaged either on his own behalf or on behalf of any other firm or
organization that is regularly publishing securities recommendations based on
research either through print media and /or electronic media.
Appreciation
A rise in the price of a security
or in the value of one currency in terms of another.
Approved intermediary
A person duly registered by the
SEBI Board under the Securities Lending Scheme , 1997 through whom the lender
of securities will deposit the securities and the borrower will borrow the
securities.
Arbitrage
(1)
Technically, arbitrage consists of purchasing a
commodity or security in one market for immediate sale in another market
(deterministic arbitrage).
(2)
Popular usage has expanded the meaning of the term to
include any activity which attempts to buy a relatively underpriced item and
sell a similar, relatively overpriced item, expecting to profit when the prices
resume a more appropriate theoretical or historical relationship (statistical arbitrage).
(3)
In trading options, convertible securities, and
futures, arbitrage techniques can be applied whenever a strategy involves
buying and selling packages of related instruments.
(4)
Risk arbitrage applies the principles of risk offset to
mergers and other major corporate developments. The risk offsetting position(s)
do not insulate the investor from certain event risks (such as termination of a
merger agreement on the risk of completion of a transaction within a certain
time) so that the arbitrage is incomplete.
(5)
Tax arbitrage transactions are undertaken to share the
benefit of differential tax rates or circumstances of two or more parties to a
transaction.
(6)
Regulatory arbitrage transactions are designed to
provide indirect access to a risk management market where one party is denied
direct access by law or regulation.
(7)
Swap driven arbitrage transactions are motivated by the
comparative advantages which swap counter-parties enjoy in different debt and
currency markets. One counterparty may borrow at a relatively lower rate in the
intermediate or long term United States dollar market, while the other may have
a comparative advantage in floating rate sterling.
Arbitration
An alternative dispute resolution
mechanism provided by a stock exchange for resolving disputes between the
trading members and their clients in respect of trades done on the exchange.
Asian option
An option whose pay-off depends
on the average value of an underlier over a specified period.
Asset Allocation
The process of determining the
optimal division of an investor’s portfolio among different assets. Most
frequently this refers to allocations between debt, equity, and cash
Asset allocation fund
A mutual fund that splits its
investment assets among stocks, bonds, and other vehicles in an attempt to
provide a consistent return for the investor.
Asset-backed securities
Securities backed by assets that
are not mortgage loans. Examples include assets backed by automobile loans,
credit card receivables and others.
Asset based securitization
A process that creates a series
of securities which is collaterised by assets mortgaged against loans, assets
leased out, trade receivables, or assets sold on hire purchase basis or
installment contracts on personal property.
Asset Management
The function of managing assets
on behalf of a customer, usually for a fee.
Asset Management Company
The company which handles the day
to day operations and investment decisions of a unit trust.
Asset Stripper
A person who buys a company in
order to make profit by peeling off its assets bit by bit, and then selling
them. These assets may be separate subsidiaries or plant and equipment or
property. This process invariably involves the stripping of another sort of
asset (the employees) of a number of jobs. This has been largely responsible
for giving asset strippers a bad name. The asset stripper relies on there being
a difference in the price of the business as a whole (as valued by a stock
market, for example) and the sum of the amounts that can be raised from its
parts sold separately. Such a possibility arises most commonly when a company
is making losses or a much smaller profit than seems to be justified by its
size.
Asymmetric information
A
situation where access to information by one party (or parties) to a transaction
is better than access by another party (or parties). Asymmetric information can
be used as a source of power in determining the outcome of the transaction.
At Best
An instruction from the client to
the broker authorizing him to use his discretion so as to execute an order at
the best possible market price.
At-the-Money Option
Term used to describe an option
or a warrant with an exercise price equal to the current market price of the
underlying asset
Auction
When a seller is not in a
position to deliver the securities he has sold, the buyer sends in his
applications for buying-in, so that the securities can be bought from the
market and delivered to him. This process by which the securities are procured
on behalf of the defaulter is known as Auction.
Auditor
A person who is professionally
qualified to examine and scrutinize accounts. He/she inspects records and
reports on the profitability and financial position of the company.
Aunt Jane/Aunt Agatha
A passive long term investor.
Authorized Assistants
Assistants or clerks of members
who are authorized by them to do business on their behalf in the market. The
member has to take responsibility of fulfilling all the transactions and
business commitments of the authorized assistants entered into on behalf of the
members.
Authorized Capital
The amount of capital that a
company has been authorized to raise by way of equity and preference shares, as
mentioned in the Articles of Association / Memorandum of Association of the
company.
Automatic Reinvestment
A fund service giving unit
holders/ shareholders the option to purchase additional units/ shares using
dividend and capital gain distributions.
Average Annual Growth Rate – AAGR
The average increase in the value
of a portfolio over the period of a year .
Averaging
The process of gradually buying
more and more securities in a declining market (or selling in a rising market)
in order to level out the purchase (or sale) price.
