How you can be a learned investor

This is the second and concluding part of the Sebi Guide on investor education. The first part was published on August 1, 1998. Bid and Offer Bid is the price of a share a prospective buyer is prepared to pay for a particular scrip. Offer is the price at which a share is offered for sale. 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 percent of the trade value. Carryforward trading Carryforward 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 volatileand tend to breach the price band. Clearing refers to the process by which all transactions between members is settled through multilateral netting. Company objection An investor sends the certificate alongwith 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 alongwith a letter which is termed as a company objection. Cum-bonus The share is described as cum-bonus when a potential purchaser is entitled to receive the current bonus. Cum-rights The share is described as cum-rights when a potentital 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. Editorialization Dematerialisation is the process by which shares in thephysical/paper form are cancelled and credit in the form of electronic balances are maintained on highly secure systems at the depository. Ex-bonus The share is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, the right to 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 meets all the requirements of title transfer from seller to buyer is called good delivery in the market. Delivery of share certificate, together with a deed of transfer, which does not meet requirements of the transfer from seller to buyer is called a bad delivery in the market. Insider 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 calledinsider 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. 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 the no-delivery 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 investors 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. These shares are illiquid in nature, as they cannot be transacted on the exchange. Order-driven trading It is a trading initiated by buy/sell orders from investors/brokers. Over-the-counter trading in thosestocks which are not listed in a stock exchange. 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 is the designated day on which securities and funds are 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 person 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 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 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 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 clearingcorporation for all trades that are executed on the exchange. In contrast, the settlement guarantee 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 debuntures and is valid for a specified period. It should be sent to the company alongwith the share certificate for registering the transfer. The transfer deed must be duly stamped and signed by or on behalf of the transfer or and transferee and complete in all respects. Transmission is the lawful process by which the ownership of securities is transferred to the legal heirs of the deceased.

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