AMERICAN DEPOSITORY RECEIPT (ADR)

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.

ALL OR NONE (AON)

All or none order - An order that must be filled in full or not at all.

ARBITRAGE

The purchase (or sale) of security or contract in one market and the simultaneous sale (or purchase)
of a synthetic version or the same amount in another to take advantage of price differentials.

ARBITRAGEUR

One who practices the trading techniques of arbitrage.

ARBITRATION

The procedure for settling disputes between members, or between members and customers.

AT A PREMIUM

A currency which is more expensive to purchase forward than for spot delivery. (foreign exchange
and currency deposit markets)

AT-THE-MONEY

Term used to describe an option or a warrant with an exercise price equal to the current market
price of the underlying asset

AT-THE-MONEY OPTION

At the money (ATM) is a situation where an option's strike price is identical to the price of the
underlying security. Both call and put options can be simultaneously ATM.
ASKING PRICE

The lowest price for which any investor or dealer has declared that he/she will sell a given security or
commodity. For over-the-counter stocks, the asking price is the best quoted price at which a Market
Maker is willing to sell a stock. For mutual funds, the asking price is the net asset value plus any sales
charges. also called asked price or offering price or ask.

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.

ACCURED 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.

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.

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.

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.

ASSET MANAGEMENT

The function of managing assets on behalf of a customer, usually for a fee.

ASSET MANAGEMENT COMPANY (AMC)

The company which handles the day to day operations and investment decisions of a unit trust.

ABSOLUTE RETURN INDEX

The absolute return index is a stock index designed to measure absolute returns on investment. The
index was created to compare the performance of an individual hedge fund against the hedge fund
market as a whole. It is a composite index made up of five other indexes.

ABSOLUTE RETURN

Absolute return is the return that an asset achieves over a certain period of time. This measure looks
at the appreciation or depreciation, expressed as a percentage, that an asset, such as a stock or a
mutual fund, achieves over a given period of time. Absolute return differs from relative return
because it is concerned with the return of a particular asset and does not compare it to any other
measure or benchmark.

AUTHORISED 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.

ABSOLUTE VALUE

An absolute value is a business valuation method that uses discounted cash flow (DCF) analysis to
determine a company's financial worth.

ACTING IN CONCERT

Acting in concert is a term used to describe when parties undertake identical investment actions to
achieve the same goal. Acting in concert requires the cooperation of people or corporations to make
the same transactions based on a previous arrangement.
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 MARKET

A market in which prices are declining.

BEAR SPREAD (FUTURES)

In most commodities and financial instruments, the term refers to selling the nearby contract
month, and buying the deferred contract, to profit from a change in the price relationship.

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.

BEST ASK

The lowest price any seller has declared that they are willing to accept at a given time for a given
security.

BEST BID

The highest price any buyer has declared that they are willing to pay at a given time for a given
security.

BEST ORDERS

These are buy or sell orders executed by the brokers at what is considered to be the best price.

BENCHMARK INDEX

Indicators used to provide a point of reference for evaluating a fund’s performance

BENEFICAL OWNER (BENEFICIARY)

The true owner of a security. Registered holder of the shares may act as a nominee to the true
shareholders/owners.

BID

An indication of willingness, made at a given moment, to buy a futures or options contract, or other
asset, at a specific price.

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.

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.

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.

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 OF ALLOTMENT

An allotment pattern of an issue among different categories of applicant

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 INTO OFFERS

An undesirable situation in open outcry markets where an intending buyer quotes a bid into a price
level that is already declared as a valid offer, thus causing confusion as to the identity of the valid
counterparty.

BID PRICE

The price or yield on a security at which a purchaser will buy it. Some exchanges display such prices
marked with a (B).

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.

BROKER

A person paid a fee or commission for executing buy or sell orders of a customer. In futures trading,
the term may refer to (1) floor broker - a person who actually executes orders on the trading floor of
an exchange; (2) account executive, associated person, registered commodity representative or
customer’s man - the person who deals with customers in the offices of futures commission
merchants; and (3) the futures commission merchant.

BROKERAGE FEE

The fee charged by a broker for execution of a transaction. The fee may be a flat amount or a
percentage.

BULL

A person expecting a rise in price.

BULL MARKET

A market in which prices are rising.

BULL SPREAD (FUTURES)

In most commodities and financial instruments, the term refers to buying the nearby month, and
selling the deferred month, to profit from the change in the price relationship.

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.

BLOCK TRADING

Buying and selling a block of securities usually takes place when restructuring or liquidating a large
portfolio.

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.

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

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 PERIOD

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 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

BUTTERFLY SPREAD (FUTURES)

A spread taken out in two adjacent maturity contracts together with an opposite spread in the latter
contract and the next maturity contract. Consider the position at the beginning of the year.

BUY STOP ORDER

A buy stop order is entered at a stop price above the current market price. Investors generally use a
buy stop order to limit a loss or protect a profit on a stock that they have sold short. A sell stop order
is entered at a stop price below the current market price. Investors generally use a sell stop order to
limit a loss or protect a profit on a stock they own.

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.