Market Basics Stock split A stock split or stock divide increases or decreases the number of shares in a public company.

The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur. Options and warrants are included. Spin-Offs A spin-off is a new organization or entity formed by a split from a larger one, such as a television series based on a pre-existing one, or a new company formed from a university research group or business incubator. In literature, especially in milieu-based popular fictional book series like mysteries, westerns, fantasy or science fiction, the term sub-series is generally used instead of spin-off, but with essentially the same meaning. Spin-offs as a descriptive term can also include a dissenting faction of a membership organization, a sect of a cult, or a denomination of a church. In business, a spin-off is essentially the opposite of a merger. In computing, a spin-off from a software project is often called a fork. A spin-off product is a product deriving elements of design, branding or function from an existing product, but which is itself a new distinct product.

Q) What is the difference between stocks and shares? Ans: Stock is a general term used to describe the shares of any company and "shares" refers to a specific stock of a particular company. So, if investors say they own stocks, they are generally referring to their overall ownership in one or more companies. If investors say they own shares - the question then becomes - shares in what company? Stocks : A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Shares : A unit of ownership interest in a corporation or financial asset. While owning shares in a business does not mean that the shareholder has direct control over the business's dayto-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends. The two main types of shares are common shares and preferred shares. Capital Markets : The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. It is a place where investors come together to buy and sell shares. Primary Markets: The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is called an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.

Secondary Market: The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Dividend The periodic, usually quarterly, payment made by a corporation to its shareholders, generally expressed as dividend per share. Dividends represent earnings that are not reinvested by the corporation. Some stocks pay no dividends and others, such as utility companies pay substantial ones that represent a large portion of the total return a shareholder will get from his investment. Dividends are a type of distribution and are usually taxable in year received. Equity is, normally, ownership or percentage of ownership in a company. Equity Share is a) a share or class of shares whether or not the share carries voting rights, b) any warrants, options or rights entitling their holders to purchase or acquire the shares referred to under (a), or c. other prescribed securities.

What Does Reverse Stock Split Mean? A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares (market capitalization) remains the same.

Derivatives: Financial instruments, such as futures and options, which derive their value from underlying securities including bonds, bills, currencies, and equities. Equity derivatives are financial derivative products whose value is dependent on the value of an underlying share or group of shares. Underlying Security The security that must be delivered when another security is exercised. For example, if a call option is exercised, then the underlying stock is delivered to the call owner. Warrants, rights, options, and convertible securities all have underlying securities. For futures options, futures are the underlying security. Futures Investment contracts which specify the quantity and price of a commodity to be purchased or can be used for speculation or hedging. Option A contract that gives the owner the right, if exercised, to buy or sell a security or basket of securities (index) at a specific price within a specific time limit. Usually, they are traded as securities themselves, with buyers and sellers trying to profit from price changes. They are generally available for 1 to 9 months, with some longer term options (called LEAPS) also available for selected securities. Stock option contracts are generally for the right to buy or sell 100 shares of the underlying stock (100 is the multiplier). Trading in options should only be undertaken by sophisticated investors. Call Option A call option gives the owner the right, but not the obligation, to buy the underlying stock at a given price (the strike price) by a given time (the expiration date). The owner of the call is speculating that the underlying stock will go up in value, hence, increasing the value of the

option. The purpose can be to speculate with the option (hope it goes up and sell for a profit), to invest in the underlying stock at a locked in price if the stock price goes high enough, or to generate income. Each option contract equals 100 shares of stock. For example, an AAA MAR 65 call, would give the owner the right to buy 100 shares of AAA at $65 (strike price) per share between now and the third Friday in March (expiration date). Put Option A put option gives the owner the right, but not the obligation, to sell the underlying stock at a given price (the strike price ) by a given time (the expiration date). The owner is speculating that the option will go up in value and the underlying stock will go down in value. The purpose can be to either speculate with the option (hope it goes up and sell for a profit) or trade the underlying stock at a locked in price if the stock price goes down enough. For example, an AAA MAR 65 put would give the owner the right to sell 100 shares of AAA at $65 (strike price) per share between now and the third Friday in March (expiration date). Hedging An investment strategy of lowering risk by buying securities that have offsetting risk characteristics. A perfect hedge eliminates risk entirely. Hedging strategies lower return since there is a cost involved in hedging. For example, a portfolio manager could short a futures contract which will perfectly offset any decrease in the value of the portfolio. Options and short selling stock can also be used for hedging. Hedge funds are investment pools that are free to use any hedging techniques they desire and they often make large bets in a relatively small number of different holdings. Intraday Trading Intraday share trading refers to the buying and selling (or vise versa) of the same script in the same trading session ( on the same day).

Blue Chip Companies: A blue chip stock is the stock of a well-established company having stable earnings and no extensive liabilities. Most blue chip stocks pay regular dividends, even when business is faring worse than usual. They are valued by investors seeking relative safety and stability, though prices per share are usually high. Bond A long-term debt instrument on which the issuer pays interest periodically, known as Coupon. Bonds are secured by COLLATERAL in the form of immovable property. While generally, bonds have a definite MATURITY, Perpetual Bonds are securities without any maturity. In the U.S., the term DEBENTURES refers to long-term debt instruments which are not secured by specific collateral, so as to distinguish them from bonds. NASDAQ An acronym for National Association of Security Dealers Automated Quotations System, which is a nationwide network of computers and other electronic equipment that connects dealers in the over-the-counter market across the U.S. The system provides the latest BID and ASKING PRICES quoted for any security by different dealers. This enables an investor to have his or her transaction done at the best price. Due to NASDAQ, the over-the-counter market in the U.S. is like a vast but convenient trading floor on which several thousand stocks are traded.

National Stock Exchange (NSE) It is a nationwide screen-based trading network using computers, satellite link and electronic media that facilitate transactions in securities by investors across India. The idea of this model exchange (traced to the Pherwani Committee recommendations) was an answer to the deficiencies of the older stock exchanges as reflected in settlement delays, price rigging and a lack of transparency. Volatility The measure of the tendency of prices to fluctuate widely. Prices of small companies tend to be more volatile than those of large corporations. Beta is a measure of volatility. Depository A system of computerized book-entry of securities. This arrangement enables a transfer of shares through a mere book-entry rather than the physical movement of certificates. This is because the scrips are dematerialized or alternatively, immobilized under the system. Bear A person who expects share prices in general to decline and who is likes to indulge in short sales. Bear Market A long period of declining security prices. Widespread expectations of a fall in corporate profits or a slowdown in general economic activity can bring about a bear market. Bull A person who expects share prices in general to move up and who is likely to take a long position in the stock market.

Transfer agent: The person or firm that cancels the shares in the name of the seller and The complete lifecycle of a U.S equity trade : Order Capture, its execution in the market, affirmation/confirmation, foreign exchange, clearing, settlement, and reporting.

Mutual Fund Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities. The sum of the collected amount is called Corpus. Retained Earnings Net profits kept to accumulate in a business after dividends are paid.

Subprime The term used for lending to borrowers at a higher rate than the prime rate as they have a higher risk of default. Subprime borrowers typically have low credit scores due to prior bankruptcy, missed loan payments, home repossession etc. Settlement The process whereby obligations arising under a derivative transaction are discharged through payment or delivery or both.

How does the SHARE MARKETS works?

Share market is a place where companies list their shares available to common public for buying & selling. these shares are now mostly held in demat form, i.e. electronic and not physical. share - a share entitles you to own a certain % of the company. if the company has total 100 shares listed and you buy 1, then you are 1% owner of the company and are entitled to participate in AGM, vote for general resolutions or receive dividends (money) if the company declares some. at the end of the day, all shares in company are summed up - total buy and total sell. this should tally by the end of 2 days (T+2). this means that if you sell 1 share today, you need to transfer 1 share from your account so that it can be given to someone else who has bought 1 share. this entire process should be complete within 2 days. complications start from here and if i write more, you will start getting confused. you can read up 100s of articles on stock markets on the net. you can post further questions if they are more specific. What is a Stock Exchange? A common platform where buyers and sellers come together to transact in stocks and shares. It may be a physical entity where brokers trade on a physical trading floor via an "open outcry" system or a virtual environment. What is electronic trading? Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically. How many Exchanges are there in India? The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. There are 20 other regional Exchanges, connected via the InterConnected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems. What is an Index? An Index is a comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements. An Index comprises stocks that have large liquidity and market capitalisation. Each stock is given a weightage in the Index equivalent to its market capitalisation. At the NSE, the capitalisation of NIFTY (fifty selected stocks) is taken

as a base capitalisation, with the value set at 1000. Similarly, BSE Sensitive Index or Sensex comprises 30 selected stocks. The Index value compares the day's market capitalisation vis-a-vis base capitalisation and indicates how prices in general have moved over a period of time. How does one execute an order? Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Place your order with your broker preferably in writing. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date. Why does one need a broker? As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognised Stock Exchange or through a SEBI- registered sub-broker. What is a contract note? A contract note describes the rate, date, time at which the trade was transacted and the brokerage rate. A contract note issued in the prescribed format establishes a legally enforceable relationship between the client and the member in respect of trades stated in the contract note. These are made in duplicate and the member and the client both keep a copy each. A client should receive the contract note within 24 hours of the executed trade. Corporate Benefits/Action What is a book-closure/record date? Book closure and record date help a company determine exactly the shareholders of a company as on a given date. Book closure refers to the closing of register of the names or investors in the records of a company. Companies announce book closure dates from time to time. The benefits of dividends, bonus issues, rights issue accruing to investors whose name appears on the company's records as on a given date, is known as the record date. An investor might purchase a share-cumdividend, cum rights or cum bonus and may therefore expect to receive these benefits as the new shareholder. In order to receive this, the share has to be transferred in the investor's name, or he would stand deprived of the benefits. The buyer of such a share will be a loser. It is important for a buyer of a share to ensure that

shares urchased at cum benefits prices are transferred before book-closure. It must be ensured that the price paid for the shares is ex-benefit and not cum benefit. What is the difference between book closure and record date? In case of a record date, the company does not close its register of security holders. Record date is the cut off date for determining the number of registered members who are eligible for the corporate benefits. In case of book closure, shares cannot be sold on an Exchange bearing a date on the transfer deed earlier than the book closure. This does not hold good for the record date. What is a no-delivery period? Whenever a company announces a book closure or record date, the Exchange sets up a nodelivery (ND) period for that security. During this period only trading is permitted in the security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determid. What is an ex-dividend date? The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price. What is an ex-date? The first day of the no-delivery period is the ex-date. If there is any corporate benefits such as rights, bonus, dividend announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for he benefits. What is a Split? A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. For example, if a company announces a two-way split, it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares. What is a Buy Back?

As the name suggests, it is a process by which a company can buy back its shares from shareholders. A company may buy back its shares in various ways: from existing shareholders on a proportionate basis; through a tender offer from open market; through a book-building process; from the Stock Exchange; or from odd lot holders. A company cannot buy back through negotiated deals on or off the Stock Exchange, through spot transactions or through any private arrangement. Clearing and Settlement What is a settlement cycle? The accounting period for the securities traded on the Exchange. On the NSE, the cycle begins on Wednesday and ends on the following Tuesday, and on the BSE the cycle commences on Monday and ends on Friday. At the end of this period, the obligations of each broker are calculated and the brokers settle their respective obligations as per the rules, bye-laws and regulations of the Clearing Corporation. If a transaction is entered on the first day of the settlement, the same will be settled on the eighth working day excluding the day of transaction. However, if the same is done on the last day of the settlement, it will be settled on the fourth working day excluding the day of transaction. What is a rolling settlement? The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is five working days after the trading day. The waiting period is uniform for all trades. When does one deliver the shares and pay the money to broker? As a seller, in order to ensure smooth settlement you should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. Simliarly, as a buyer, one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day. What is short selling? Short selling is a legitimate trading strategy. It is a sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers

take the risk that they will be able to buy the stock at a more favourable price than the price at which they "sold short." What is an auction? An auction is conducted for those securities that members fail to deliver/short deliver during payin. Three factors primarily give rise to an auction: short deliveries, un-rectified bad deliveries, unrectified company objections What happens if the shares are not bought in the auction? If the shares are not bought at the auction i.e. if the shares are not offered for sale,the Exchange squares up the transaction as per SEBI guidelines. The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available Closing price whichever is higher. The pay-in and pay-out of funds for auction square up is held along with the pay-out for therelevant auction. What is bad delivery? SEBI has formulated uniform guidelines for good and bad delivery of documents. Bad delivery may pertain to a transfer deed being torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer. Bad delivery exists only when shares are transferred physically. In "Demat" bad delivery does not exist. How does transfer of physical shares take place? After a sale, the share certificate along with a proper transfer deed duly stamped and complete in all respects is sent to the company for transfer in the name of the buyer. Once the transfer is registered in the share transfer register maintained by the company, the process of transfer is complete. Equities What is equity? Funds brought into a business by its shareholders is called equity. It is a measure of a stake of a person or group of persons starting a business.

What does investing in equity mean? When you buy a company's equity, you are in effect financing it, and being compensated with a stake in the business. You become part-owner of the company, entitled to dividends and other benefits that the company may announce, but without any guarantee of a return on your investments. What is EPS, P/E, BV and MV/BV? Earning Per Share (EPS): EPS represents the portion of a company's profit allocated to each outstanding share of common stock. Net income (reported or estimated) for a period of time is divided by the total number of shares outstanding during that period. It is one of the measures of the profitability of common shareholder's investments. It is given by profit after tax (PAT) divided by number of common shares outstanding. Price Earning Multiple (P/E): Price earning multiple is ratio between market value per share and earning per share. Book Value (BV): (of a common share) The company's Net worth (which is paid-up capital + reserves & surplus) divided by number of shares outstanding. Market value to book value ratio (MV/BV ratio): It is the ratio between the market price of a security and Book Value of the security. What is the procedure for the dematerialisation of securities? Check with a DP as to whether the securities you hold can be dematerialised. Then open an account with a DP and surrender the share certificates. What is a Depository? A Depository is a securities "bank," where dematerialised physical securities are held in custody, and from where they can be traded. This facilitates faster, risk-free and low cost settlement. A Depository is akin to a bank and performs activities similar in nature. At present, there are two Depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (CDS). NSDL was the first Indian Depository. It was inaugurated in November 1996. NSDL was set up with an initial capital of Rs 124 crore, promoted by Industrial Development Bank

of India (IDBI), Unit Trust of India (UTI), National Stock Exchange of India Ltd. (NSEIL) and the State Bank of India (SBI). Who is a Depository Participant (DP)? NSDL carries out its activities through business partners - Depository Participants (DPs), Issuing Corporates and their Registrars and Transfer Agents, Clearing Corporations/Clearing Houses. NSDL is electronically linked to each of these business partners via a satellite link through Very Small Aperture Terminals (VSATS). The entire integrated system (including the VSAT linkups and the software at NSDL and at each business partner's end) has been named the "NEST" (National Electronic Settlement & Transfer) system. The investor interacts with the Depository through a Depository Participant of NSDL. A DP can be a bank, financial institution, a custodian or a broker Can the Stock Exchange fix or alter the hawala rate? Normally, Stock Exchanges do not interfere with the hawala rates. However, there are instances, when rates have been changed to ensure safety of the markets. This is so because in case the market witnesses a sharp fall during a settlement, the chances of a broker default are extremely high. This is when the Exchange administration steps in and raises the hawala rate to avert any possible default. IPOs What is an IPO? An IPO is an abbreviation for Initial Public Offer. When a company goes public for the first time or issues a fresh stock of shares, it offers it to the public directly. This happens in the primary market. The primary market is where a company makes its first contact with the public at large.