Whom should I contact for my Stock Market related transactions?


You can contact a broker or a sub broker registered with SEBI for carrying out your transactions pertaining to the capital market.

Who is a sub broker?


A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange.

Who is a broker?

A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI.

What recourses are available to me for redressing my grievances?

You have following recourses available:•Office of Investor Assistance and Education (OIAE) : You can lodge a complaint with OIAE Department of SEBI against companies for delay, non-receipt of shares, refund orders, etc., and with Stock Exchanges against brokers on certain trade disputes or non receipt of payment/securities.

Arbitration: If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock Exchange.

Court of Law

What kind of details do I have to provide in Client Registration form?

The brokers have to maintain a database of their clients, for which you have to fill client registration form. In case of individual client registration, you have to broadly provide following information:


•Permanent Account Number (PAN), which has been made mandatory for all the investors participating in the securities market.
•Your name, date of birth, photograph, address, educational qualifications, occupation, residential status(Resident Indian/ NRI/others)
•Bank and depository account details
•If you are registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.

For proof of address (any one of the following):

•Passport
•Voter ID
•Driving license
•Bank Passbook
•Rent Agreement
•Ration Card
•Flat Maintenance Bill
•Telephone Bill
•Electricity Bill
•Insurance Policy

Each client has to use one registration form. In case of joint names /family members, a separate form has to be submitted for each person.

In case of Corporate Client, following information has to be provided:
•Name, address of the Company/Firm
•Date of incorporation and date of commencement of business.
•Registration number(with ROC, SEBI or any government authority)
•Details of PAN
•Details of Promoters/Partners/Key managerial Personnel of the Company/Firm in specified format.
•Bank and Depository Account Details
•Copies of the balance sheet for the last 2 financial years (copies of annual balance sheet to be submitted every year)
•Copy of latest share holding pattern including list of all those holding more than 5% in the share capital of the company, duly certified by the Company Secretary / Whole time Director/MD. (copy of updated shareholding pattern to be submitted every year)
•Copies of the Memorandum and Articles of Association in case of a company / body corporate, partnership deed in case of a partnership firm
•Copy of the Resolution of board of directors' approving participation in equity / derivatives / debt trading and naming authorized persons for dealing in securities.
•Photographs of Partners/Whole time directors, individual promoters holding 5% or more, either directly or indirectly, in the shareholding of the company and of persons authorized to deal in securities.
•If registered with any other broker, then the name of broker and concerned Stock exchange and Client Code Number.

What is the pay-in day and pay- out day?

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out day is the day when the exchange makes payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement basis w.e.f. April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout. The Exchanges will have to issue press release immediately after pay out.

What is the maximum brokerage that a broker can charge?

The maximum brokerage that can be charged by a broker has been specified in the Stock Exchange Regulations and hence, it may differ from across various exchanges. As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5% brokerage from his clients.

What is the difference between 'Block deal' and 'Bulk deal'?

Block deal is a trade, with a minimum quantity of 5,00,000 shares or minimum value of Rs. 5 crores, executed through a single transaction, on the special "Block Deal window".

Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity shares of the company.

The orders in a block deal are not shown to the people who trade from normal trade window. Bulk orders, on the other hand, are visible to everyone.

What is the difference between the primary market and the secondary market?

In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

What is the difference between rights and bonus shares?

Bonus shares means new shares given free of cost to all the existing shareholders of the company, in proportion to their holdings. For example, a company announcing bonus issue of 1:5, is issuing one (new) bonus share for every five shares held by the shareholders of the company.

Rights issues are a proportionate number of shares available to all the existing shareholders of the company, which can be bought at a given price (usually at a discount to current market price) for a fixed period of time. For example, a company announcing rights issue of 2:3 at Rs. 100 per share (current share price Rs. 130 per share), is issuing two (new) rights shares for every three shares held by the shareholders of the company at Rs. 100 per share. The rights shares can also be sold in the open market. If not subscribed to, the rights shares lapse on closure of the offer.

What is the difference between cash EPS and EPS?


Cash EPS takes into account the cash flow generated by a company on a per share basis, while EPS looks at the net income generated on a per share basis, for a given period. Like EPS, higher the cash EPS, better it is considered.

Cash EPS = Operating cash flow for the period

Weighted average number of equity shares outstanding

Cash EPS can be computed from EPS by adjusting for depreciation, amortization of goodwill and other non-cash items such as deferred tax and intangibles.

What is T2T segment on BSE?

Trade-to-trade (T2T) or T segment on BSE is segment in which no intra-day trading is allowed for shares falling in that segment, as each trade results in delivery. Transactions placed in this segment have to be mandatorily settled on gross basis i.e. by taking or giving delivery even if you have bought and sold the shares during the same settlement cycle.

If you buy shares, you must pay the money and take delivery.

If you sell shares, you must give the delivery of shares and you will get money.

If you buy today and sell today and don't have delivery, then the sell position will go in to auction and you will have to pay heavy penalty.

What is swap ratio?

Swap ratio is an exchange ratio used in case of mergers and acquisitions. It is the ratio in which the acquiring company offers its own shares in exchange for the target company's shares. To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share, profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the merger or acquisition and so on.

For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share of its own company (company A) for every 5 shares of the company B being acquired. In other words, if company B has 10 crore outstanding equity shares and 100% of it is being acquired by company A, then company A will issue 2 crore new equity shares of company A to the shareholders of company B, proportionately.

What is STT?

Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004.

What is Short Selling and Securities Lending & Borrowing?

Short Selling means selling of a stock that the seller does not own at the time of trade. Short selling can be done by borrowing the stock through Clearing Corporation/Clearing House of a stock exchange which is registered as Approved Intermediaries (AIs). Short selling can be done by retail as well as institutional investors. Naked short sale is not permitted in India, all short sales must result in delivery, and information on short sale has to be disclosed to the exchange by end of day by retail investors, and at the time of trade for institutional investors. The Securities Lending and Borrowing mechanism allows short sellers to borrow securities for making delivery. Securities in the F&O segment are eligible for short selling.

Securities Lending and Borrowing (SLB) is a scheme that has been launched to enable settlement of securities sold short. SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same. For securities lending and borrowing system, clearing corporations/clearing house of the stock exchange would be the nodal agency and would be registered as the "Approved Intermediaries"(AIs) under the Securities Lending Scheme, 1997.

Under SLB, securities can be borrowed for a period of 7 days through a screen based order matching mechanism. Securities in the F&O segment are eligible for SLB.

What is Return on Equity (RoE)?

Return on Equity, also known as Return on Networth or Return on Shareholders Funds, indicates profitability of a company by measuring how much the shareholders earned for their investment in the company. The higher the percentage, the more efficiently equity base has been utilized, indicating better return to investors.


RoE is ratio of net income (available for equity shareholders) to average shareholders' equity.


RoE = __________________Profit After Tax__________________

Equity Share capital + Free Reserves - Miscellaneous Expd.


E.g. If net profit is Rs.100 crore, Equity share capital is Rs.100 crore, Reserves and Surplus is Rs.900 crore, Miscellaneous Expd. Nil


RoE = 100___

100 + 900


Return on Equity is 10%.

What is repo rate and reverse repo rate?

Repo or repurchase option is a means of short-term borrowing, wherein banks sell approved government securities to RBI and get funds in exchange. In other words, in a repo transaction, RBI repurchases government securities from banks, depending on the level of money supply it decides to maintain in the country's monetary system.

Repo rate is the discount rate at which banks borrow from RBI. Reduction in repo rate will help banks to get money at a cheaper rate, while increase in repo rate will make bank borrowings from RBI more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator, thus earning interest. Reverse repo rate is the rate at which RBI borrows money from banks. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest.

Thus, repo rate is always higher than the reverse repo rate

What is Record Date?

Date set by a company on which the investor must own shares, to be eligible for dividend, share split, bonus, rights issue or other capital gains as declared / announced by the company. It is the date established by the company for determining the shareholders who are entitled to receive dividend, bonus or rights shares of the company.

In this case, it is also important to know what an ex-date is. Ex-date is the date on which the seller, and not the buyer, of a stock will be entitled to a recently announced dividend, bonus or other corporate action. The ex-date is usually a business day prior to the record date, since T+2 trading cycle is followed for clearing and settlement of trades in India.

Example:

If record date for dividend is set by a company as 4th March, then those investors, whose names appear on the shareholder list of 4th March, as received by the company form the depository will be entitled to the dividend. Doing a back-calculation, for an investors name to feature in the 4th March shareholder list, he should be holding the shares two days prior to that date i.e. on 2nd March (due to T+2 cycle). Thus, those shareholders holding shares at end of day 2nd March, will be entitled to the dividend. The ex-date, in this case, will be 3rd March, a date on which the buyer will not be entitled to the dividend declared.

What is Member -Client Agreement Form?

This form is an agreement entered between client and broker in the presence of witness where the client agrees (is desirous) to trade/invest in the securities listed on the concerned Exchange through the broker after being satisfied of brokers capabilities to deal in securities. The member, on the other hand agrees to be satisfied by the genuineness and financial soundness of the client and making client aware of his (broker's) liability for the business to be conducted.

What is meant by 'Stoploss'?

Stoploss is a buy or sell order which gets triggered automatically, once the stock reaches a certain price. The aim here is to limit the loss on a security (buy or sell) position.

A stop order to sell becomes a market order when the item is offered at or below the specified price. E.g.: If you have bought 1 share of RIL at Rs. 1,050, you will enter stoploss order at a price below Rs. 1,050, say Rs. 1,020. If RIL share price falls to Rs. 1,020, a sell stoploss order will get triggered, which limits your loss on account of purchase to Rs. 30.

Similarly, a stop order to buy becomes a market order when the item is bid at or above the specified price. E.g.: If you have short-sold 1 share of RIL at Rs. 1,050, you will enter stoploss order at a price above Rs. 1,050, say Rs. 1,070. If RIL share price rises to Rs. 1,070, a buy stoploss order will get triggered, which will limit your loss on account of sale to Rs. 20.

There are no set rules for stoploss orders. Traders deploy very tight stoploss orders, while investors may not need it also. Advantage of stoploss is it avoids the need for constant monitoring of share price. Its disadvantage is that short-term price fluctuations could trigger stoploss orders very frequently. Also, setting very narrow stoploss for shares historically having wide price fluctuations could lead to unnecessary triggers of stoploss.

E.g.: If you bought 1 share of RIL at Rs. 1050 with stoploss of Rs. 1020. This means that if the stock falls below 1020, your stoploss order will automatically become a market order and share will be sold at the then prevailing market price, not necessarily the stoploss price. Thus setting a stoploss order below the purchase price will limit the loss, but in a very fast-moving market, losses may be higher than expected.

What is meant by 'Right of first refusal'?

Right of first refusal, abbreviated as ROFR, is the right of a person (investor) or company to purchase something before the offering is made available to others. If an investor /PE fund plans to exit the company, it is obliged to give the promoters or existing shareholders, an opportunity to buy the shares held by the PE before selling the same to a third party.

There are other rights for minority shareholders, such as:

Tag along right - contractual obligation which protects a minority shareholder in case the majority / promoter is selling out. Minority shareholder can compel stake sale of his stake along with the majority / promoter.

Drag along right - contractual right with minority shareholder to force the majority shareholder / promoter to join in the sale of the company. If minority shareholder is selling-out, it can compel majority shareholder / promoter to compulsorily offer their stake as well.

What is meant by Unique Client Code?

In order to facilitate maintaining database of their clients and to strengthen the know your client (KYC) norms; all brokers have been mandated to use unique client code linked to the PAN details of the respective client which will act as an exclusive identification for the client.

What is Margin Trading Facility?

Margin Trading is trading with borrowed funds/securities. It is essentially a leveraging mechanism which enables investors to take exposure in the market over and above what is possible with their own resources. SEBI has been prescribing eligibility conditions and procedural details for allowing the Margin Trading Facility from time to time.

Corporate brokers with net worth of at least Rs.3 crore are eligible for providing Margin trading facility to their clients subject to their entering into an agreement to that effect. Before providing margin trading facility to a client, the member and the client have been mandated to sign an agreement for this purpose in the format specified by SEBI. It has also been specified that the client shall not avail the facility from more than one broker at any time.

The facility of margin trading is available for Group 1 securities and those securities which are offered in the initial public offers and meet the conditions for inclusion in the derivatives segment of the stock exchanges.

For providing the margin trading facility, a broker may use his own funds or borrow from scheduled commercial banks or NBFCs regulated by the RBI. A broker is not allowed to borrow funds from any other source.

The "total exposure" of the broker towards the margin trading facility should not exceed the borrowed funds and 50 per cent of his "net worth". While providing the margin trading facility, the broker has to ensure that the exposure to a single client does not exceed 10 per cent of the "total exposure" of the broker.

Initial margin has been prescribed as 50% and the maintenance margin has been prescribed as 40%.

In addition, a broker has to disclose to the stock exchange details on gross exposure including name of the client, unique identification number under the SEBI (Central Database of Market Participants) Regulations, 2003, and name of the scrip.

If the broker has borrowed funds for the purpose of providing margin trading facility, the name of the lender and amount borrowed should be disclosed latest by the next day.

The stock exchange, in turn, has to disclose the scrip-wise gross outstanding in margin accounts with all brokers to the market. Such disclosure regarding margin-trading done on any day shall be made available after the trading hours on the following day.

The arbitration mechanism of the exchange would not be available for settlement of disputes, if any, between the client and broker, arising out of the margin trading facility. However, all transactions done on the exchange, whether normal or through margin trading facility, shall be covered under the arbitration mechanism of the exchange.

What is free-float?

Free-float refers to those shares which are readily available for trading in the stock market. It generally excludes promoters' holding, government / strategic holding and other locked-in shares, which will not come to the market for trading in the normal course.

E.g.: MMTC has Rs. 5 crore outstanding shares, of which 4.97 crore shares are held by the Government under promoter category. Only the balance 3.34 lakh shares comprise the free float of the company.

What is EPS?

EPS or Earnings per share, is the net profit earned by the company divided by the number of outstanding equity shares. If any preference dividend is declared, it is subtracted from the net profit.

Eg: A company earned net profit of Rs. 100 crore for FY10. It has 5 crore outstanding equity shares. No fresh issue of equity shares was made during the year, implying that the weighted average number of equity shares outstanding during the period is 5 crore.

EPS = Net profit earned during the period

Weighted average number of equity shares outstanding during the period

EPS = 100 / 5

EPS = Rs. 20

What is enterprise value?

Enterprise value (EV) is the total value of the firm, reflecting the market value of the entire business. EV is calculated as under:

Market Capitalisation

Add: Debt (secured and unsecured)

Add: Minority Interest

Add: Preference share capital

Less: Cash and cash equivalents

E.g.: If the market cap of company is Rs. 100 crore, it had debt of Rs. 40 crore and cash and bank balance of Rs. 10 crore, then the enterprise value is calculated as:

EV = 100 + 40 - 10 crore

= Rs. 130 crore

What is dividend yield?

Dividend yield is dividend to price ratio. It is the percentage calculated by dividing dividend per share by price per share. Dividend yield is used to calculate the earning on investment (shares) considering only the returns in the form of total dividends declared by the company during the year.

Dividend Yield = Interim + Final Dividend X 100

Market Price of the share

E.g.: For a company for FY10,

Interim dividend = Rs. 2 per share

Final dividend = Rs. 3 per share

Share price = Rs. 50

Dividend yield = 2 + 3

50

Dividend yield =10%

What is dividend payout ratio?

Dividend Payout ratio, or simply payout ratio, is the percentage of a company's earnings paid as dividends to the shareholders. It indicates how well the company's earnings support the dividend payment.

Dividend Payout ratio = Dividend per equity share X 100

Earnings per share (EPS)

E.g.: For FY10, a company had EPS of Rs. 10. It paid dividend of 20% (Rs. 2 per equity share of Rs. 10 each) for the year.

Dividend payout ratio = Rs. 2 X 100

Rs. 10

Dividend payout ratio = 20%

What is debt-equity ratio?

Debt-equity ratio is a measure of leverage, indicating proportion of company's total capital contributed by secured and unsecured debt. A high debt-equity ratio, generally 2:1 and above, is not considered favourable for companies. Also, this ratio varies from industry to industry.



Debt-equity ratio = Secured + Unsecured debt

Shareholders Funds


E.g.: As on 31st March 2010, company had secured loan of Rs. 70 crore, unsecured loan of Rs. 30 crore, shareholders funds (equity and reserves) of Rs. 200 crore.



Debt-equity ratio = 70 + 30

200



Debt-equity ratio = 0.5:1

What is Commercial Paper?

Commercial paper is a money market instrument issued normally for tenure of 90 days. It is a short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn't require any guarantee.

What is Capital Adequacy Ratio for banks?

Capital Adequacy Ratio (CAR), also known as Capital to Risk Weighted Assets Ratio (CRAR), is the measure of a bank's capital and is expressed as a percentage of a bank's risk weighted credit exposures.

CAR = Total Capital

Total Risk weighted assets

Total capital comprises of the bank's Tier I and Tier II capital

Total risk weighted assets takes into account credit risk, market risk and operational risk.

Currently, RBI mandates minimum CRAR of 9%, but the Government of India has mandated total CRAR of 12%, with 8% Tier I capital.

What is ASBA, with respect to IPOs?

ASBA stands for Application Supported by Blocked Amount. The facility was introduced by SEBI in July 2008 to help retail investors apply in IPOs, FPOs and rights issue of companies, with ease.

Earlier while making an application in an IPO, an investor had to pay full application money at the time of submission of the application form. In ASBA, one can make an application for shares without actually parting with the money immediately.

The amount for application money is only blocked in the account of the applicant. The money is debited from the bank account only when the basis of allotment is finalised and also only for number of shares that are finally allotted to the investor. Money blocked under ASBA is unblocked fully or partly as and when the shares are allotted or the issue is withdrawn.

Thus ASBA eliminates problems associated with delay or non-receipt of refunds. Moreover, banks continue to give interest on account as also the money blocked in the account is considered for calculating the average daily / quarterly balances. Thus, investors are saved of hassles on refund deposits while continuing to earn interest on the application money.

What is Arbitration?

Arbitration is 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.

What is an Auction?

The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. The shortages are met through auction process and the difference in price indicated in contract note and price received through auction is paid by member to the Exchange, which is then liable to be recovered from the client.

What is an Account Period Settlement?

An account period settlement is a settlement where the trades pertaining to a period stretching over more than one day are settled. For example, trades for the period Monday to Friday are settled together. The obligations for the account period are settled on a net basis. Account period settlement has been discontinued since January 1, 2002, pursuant to SEBI directives.

What is a 'Put' option?

Put option gives the buyer the right but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given future date.

For e.g.: Buying 1 put option of ONGC 1250 30Dec2010 comprising 250 equity shares for Rs. 15 per put, will give the buyer the right to sell 250 ONGC shares on or before 30th December 2010 at Rs. 1,250 per share, irrespective of the share price (in cash market). Since it is only a right and no obligation to sell, the buyer can let this right lapse, which will be the case when ONGC share price is more than Rs. 1,250 in cash market. In the above case, loss is limited to Rs. 15 while the gains are unlimited to the buyer.

Rs. 15 paid is termed as option premium or the cost of purchasing 1 put option containing the pre-determined quantity of the underlying i.e. 250 ONGC equity shares.

Selling a put option gives the seller the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date, when the right is exercised by the buyer. For a seller of put option, profit is limited to the premium earned while loss it unlimited, as the buyer can exercise his put option anytime till the expiry of contract.

What is a 'Call' option?

Call option gives the buyer the right but not the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date.

For e.g.: Buying 1 call option of ONGC 1250 30Dec2010 comprising 250 equity shares for Rs. 80 per call will give the buyer the right to buy 250 ONGC shares on or before 30th December 2010 at Rs. 1,250 per share, irrespective of the share price (in cash market). Since it is only a right and no obligation to buy, the buyer can let this right lapse, which will be the case when ONGC share price is less than Rs. 1,250 in cash market. In the above case, loss is limited to Rs. 80 while the gains are unlimited to the buyer.

Rs. 80 paid is termed as option premium or the cost of purchasing 1 call option containing the pre-determined quantity of the underlying.

Selling a call option gives the seller the obligation to sell a given quantity of the underlying asset at a given price on or before a given future date, when the right is exercised by the buyer. For a seller of call option, profit is limited to the premium earned while loss it unlimited, as the buyer can exercise his call option anytime till the expiry of contract.

What is a Rolling Settlement?

In a Rolling Settlement, trades executed during the day are settled based on the net obligations for the day.

Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).

The funds and securities pay-in and pay-out are carried out on T+2 day.

What is a Money Market?

Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.

What is a Capital Market

Capital market is a market for buying and selling of long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

What happens if the shares are not bought in the auction?

If the shares could not be bought in the auction i.e. if shares are not offered for sale in the auction, the transactions are closed out as per SEBI guidelines.

The guidelines stipulate that "the close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and up to the date of auction/close out OR 20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price), whichever is higher.

Since, in the rolling settlement the auction and the close out takes place during trading hours, the reference price in the rolling settlement for close out procedures would be taken as the previous day's closing price.

What happens if I do not get my money or share on the due date?

In case a broker fails to deliver the securities or make payment on time, or if you have complaint against conduct of the stock broker, you can file a complaint with the respective stock exchange. The exchange is required to resolve all the complaints. To resolve the dispute, the complainant can also resort to arbitration as provided on the reverse of contract note /purchase or sale note. However, if the complaint is not addressed by the Stock Exchanges or is unduly delayed, then the complaints along with supporting documents may be forwarded to SEBI. Your complaint would be followed up with the exchanges for expeditious redressal.

In case of complaint against a sub broker, the complaint may be forwarded to the concerned broker with whom the sub broker is affiliated for redressal.

What does 'pari passu' mean?

Pari passu is a Latin term commonly used in legal documents meaning 'equal in all respects' or 'in the same degree or proportion'.

For example, if issue of new shares is said to rank pari passu with the existing shares, then the rights associated with both the existing as well as the new shares are exactly the same.

What does 'In the Money', 'Out of Money', 'At the Money' mean, with respect to Call Option?

What does 'In the Money', 'Out of Money', 'At the Money' mean, with respect to Call Option? 19 Jun 2012 at 11:00 am A Call Option is said to be 'In the Money' if its strike price is less than the current stock price in the cash segment of the market. Exercising an 'In the Money' Call Option will lead to profit for the option holder.

Call Option is 'At the Money' if its strike price is equal to price of the underlying i.e. current stock price in the cash segment of the market. Exercising an 'At the Money' Call Option will lead to no profit / no loss situation for the option holder.

Call Option is said to be 'Out of the Money' if its strike price is more than the current stock price in the cash segment of the market. Option holder must not exercise an 'Out of the Money' Call Option as it will lead to loss.

E.g. If share price of ABC Ltd is Rs. 100 in the cash market, a call option will strike price of 90 is 'In the Money' call option, whereas a call option with strike price of 110 is 'Out of Money' call option and call option with strike price 100 is 'At the Money' Call option.

What does Secondary Market mean?

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market via an IPO and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

What does Secondary Market mean?

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market via an IPO and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

What does Open Interest mean?

Open Interest is the total number of outstanding contracts held by market participants at the end of the day. Alternatively, it is the total number of futures contracts that have not yet been exercised (squared off) or expired.

Open interest indicates the trend in the F&O market and measures the flow of money into the futures market. The open interest position represents the increase or decrease in the number of contracts for a day, and it is shown as a positive or negative number.

Calculation of Open Interest:
Each trade completed on the exchange has an impact upon the level of open interest for that day. There a three possibilities -


1.One new buyer, one new seller (both parties initiating a new position) - open interest will increase by one contract
2.One old buyer, one old seller (both parties are closing an existing/old position) - open interest will decline by one contract
3.One old buyer, one new buyer (old trader passing off his position to a new trader) - open interest remains unchanged

Increasing open interest means that new money is flowing into the marketplace. The result will be continuation of present trend (up, down or sideways).

Declining open interest means that market is liquidating and implies prevailing price trend is coming to an end.

What does ISIN stand for wrt securities?

ISIN stands for International Securities Identification Number (ISIN). It is an international numbering system set up by the International Organization for Standardization (ISO) to number specific securities, such as stocks (equity and preference shares), bonds, options and futures.

ISIN contains 12 characters in total, which comprise of both alphabets and numbers. The first two digits stand for the country code, next nine digits are the unique identification number for the security while the last digit is a check digit to prevent errors.

E.g.: ISIN for State Bank of India (SBI) is INE062A01012.

What documents should be obtained from broker on execution of trade?

You have to ensure receipt of the following documents for any trade executed on the Exchange:

a. Contract note in Form A to be given within stipulated time.

b. In the case of electronic issuance of contract notes by the brokers, the clients shall ensure that the same is digitally signed and in case of inability to view the same, shall communicate the same to the broker, upon which the broker shall ensure that the physical contract note reaches the client within the stipulated time.

It is the contract note that gives rise to contractual rights and obligations of parties of the trade. Hence, you should insist on contract note from stock broker.

What details are required to be mentioned on the Contract note issued by the Stock Broker?

A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following:

•Name, address and SEBI Registration number of the Member broker.
•Name of partner /proprietor /Authorised Signatory.
•Dealing Office Address/Tel No/Fax no, Code number of the member given by the Exchange.
•Unique Identification Number
•Contract number, date of issue of contract note, settlement number and time period for settlement.
•Constituent (Client) name/Code Number.
•Order number and order time corresponding to the trades.
•Trade number and Trade time.
•Quantity and Kind of Security brought/sold by the client.
•Brokerage and Purchase /Sale rate are given separately.
•Service tax rates and any other charges levied by the broker.
•Securities Transaction Tax (STT) as applicable.
•Appropriate stamps have to be affixed on the original contract note or it is mentioned that the consolidated stamp duty is paid.
•Signature of the Stock broker/Authorized Signatory.

Contract note provides for the recourse to the system of arbitrators for settlement of disputes arising out of transactions. Only the broker can issue contract notes.

What are the prescribed pay-in and pay-out days for funds and securities for Normal Settlement?

The pay-in and pay-out days for funds and securities are prescribed as per the Settlement Cycle. A typical Settlement Cycle of Normal Settlement is given below:

Activity Day
Trading Rolling Settlement Trading T

Clearing Custodial Confirmation T+1 working days
Delivery Generation T+1 working days

Settlement Securities and Funds pay in T+2 working days
Securities and Funds pay out T+2 working days

Post Settlement Valuation Debit T+2 working days
Auction T+3 working days
Bad Delivery Reporting T+4 working days
Auction settlement T+5 working days
Close out T+5 working days
Rectified bad delivery pay-in and pay-outT+6 working days
Re-bad delivery reporting and pickup T+8 working days
Close out of re-bad delivery T+9 working days

Note: The above is a typical settlement cycle for normal (regular) market segment. The days prescribed for the above activities may change in case of factors like holidays, bank closing etc. You may refer to scheduled dates of pay-in/pay-out notified by the Exchange for each settlement from time-to-time

What are the charges that can be levied on the investor by a stock broker?

The trading member can charge:

1. Brokerage charged by member broker.
2. Penalties arising on specific default on behalf of client (investor)
3. Service tax as stipulated.
4. Securities Transaction Tax (STT) as applicable.

The brokerage, service tax and STT are indicated separately in the contract note.

What are preferece shares?

Preference shares are shares in which the owners of the shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company's creditors, bondholders / debenture holders. In short they get preference over equity shareholders in case of payment of dividends on in case of winding up of the company.

What are Participating Preference Shares?

Participating Preference Shares are shares where the right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid is given. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

What are equity shares?

An equity share, commonly referred to as ordinary share also represents the form of fractional or part ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.

What are DVR shares?

What are DVR shares? 29 May 2012 at 11:00 am DVR or differential voting rights shares are like ordinary equity shares but with differential voting rights. Shares can have higher or lower voting rights as compared to the ordinary equity shares. However, Indian regulations do not permit companies to issue equity shares with higher voting rights. Hence, Indian DVR shares provide for lower voting rights as compared to ordinary equity shares.

Companies issue DVRs for several reasons such as prevention of a hostile takeover, bringing in a passive strategic investor or dilution of voting rights. DVR investors are generally compensated with a higher dividend rate. This makes the DVRs attractive for retail investors who do not want control in the company, but are looking at the long-term growth prospects.

DVR shares are listed on the stock exchanges and are traded in the same manner as ordinary equity shares, but they mostly trade at a discount, sometimes as high as 30%, due to fewer voting rights.

Tata Motors, Gujarat NRE Coke, Pantaloon Retail, Jain Irrigation are some of the Indian companies that have issued DVR shares.

E.g.: Tata Motors' DVR shares carry voting rights which are one-tenth of the ordinary equity shares. The DVR shareholders are entitled to an additional 5% dividend, over and above the ordinary equity shareholders. Tata Motors DVR are trading at 800 or 36% discount to the ordinary shares, which are at trading at Rs 1,245 (as of 23rd November 2010).

What are Cumulative Preference Shares?

Cumulative Preference Shares are a type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

What are Cumulative Convertible Preference Shares?

Cumulative Convertible Preference Share are a type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

What are Cumulative Convertible Preference Shares?

Cumulative Convertible Preference Share are a type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

What are CRR and SLR with respect to banks?

CRR or cash reserve ratio is the minimum proportion / percentage of a bank's deposits to be held in the form of cash. Banks actually don't hold these as cash with themselves, but deposit the same with RBI / currency chests, which is considered equivalent to holding cash with themselves.

When a bank's deposits increase by Rs. 100 crore, and considering the present cash reserve ratio of 6%, bank will have to hold additional Rs. 6 crore with RBI and will be able to use only Rs. 94 crore for investments and lending. Therefore, higher the CRR, lower the amount that banks can lend. Thus RBI can control the liquidity by changing the CRR i.e. increase CRR to reduce the lendable amount and vice-versa.

SLR or statutory liquidity ratio is the minimum percentage of deposits that a bank has to maintain in form of gold, cash or other approved securities. It is the ratio of liquid assets (cash and approved securities) to the demand and term liabilities / deposits.

RBI is empowered to increase this ratio up to 40%. An increase in SLR restricts the bank's leverage position to pump more money into the economy, thereby regulating credit growth.

What are Bonus Shares?

Bonus shares are shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

Understand how the stock market works

When you read you begin with A-B-C. When you sing you begin with Do-Re-Mi. And when you invest in stocks you begin with business-company-shares.

Before you embark on your journey to invest in equities, teach yourself how the stock market works. Read this easy guide

Prepare to invest

Investment planning is simpler than you think, and more rewarding than you would imagine.

Your age and investment size does not matter, nor do you have do be a money whiz - just do it NOW. So where do you start?

Identify your financial goals
What are your goals? What are you saving for - A house? Child's education/ marriage? New car? World tour? Retirement? Quantify this in terms of amount of money needed, and time horizons.

To understand the process of defining and quantifying your future goals, use our Retirement Planner . Even if you do not have retirement planning as one of your financial goals, this planning tool should help you understand the process of financial goal planning.

Understand your risk profile
Depending on our income and needs, we all have different capacity for risk. We also have a different risk tolerance, based on our individual psychological make-up. Understand your risk profile and plan your portfolio accordingly.

Find out: Your risk profile

Plan your asset allocation
Returns should not be your primary objective; you could end up taking more risk than you are financially/ psychologically capable of. It helps seek expert advice and create a portfolio with the right spread across asset classes to minimise risk of incurring a loss.

Calculate: Your asset allocation

Power of compounding

The only thing worse than investing late is not investing at all.
Use the power of compounding
Compounding is the best reason for starting early. The sooner you begin investing the better - every day that you are invested is a day that your money is working for you.

Check out: How the power of compounding works

Invest as per your needs
If you know you will need cash next year (down payment for a house, child's college fee etc), opt for a shorter term, low capital risk investment (such as liquid/ gilt/ money market funds, bank term deposits or top-rated company deposits/ fixed income investment options).

Similarly, invest money that you will not need for 3-5 years in the stock market.

Evaluate your investing skills
Finding the right money manager for your investments is important. You could manage your money yourself, use professional money managers, or invest through mutual funds.

Financial planning is not about financial expertise and hard work. All it needs is the right approach and discipline.

Monitor and review

Monitoring your equity investments regularly is recommended. Keep in touch with the quarterly-results announcements and update the prices on your portfolio worksheet atleast once a week. You can use Moneycontrol's Portfolio to update the prices of your equity holdings.

Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary. Ideally, revisit the RiskAnalyser at every such review because your risk capacity and risk profile could have undergone a change over a 12-month period.

Finally, ensure that you avoid these seven most common investing mistakes and sail smoothly into your financial bright future

Learn how to choose a stock

Having understood the markets, it is important to know how to go about selecting a company, a stock and the right price. A little bit of research, some smart diversification and proper monitoring will ensure that things seldom go wrong.
It's not that difficult: Just follow these 4 golden rules. And while you are at it< why don't you also check out How to buy low, sell high.

Is there any provision where I can get faster delivery of shares in my account?

The investors/clients can get direct delivery of shares in their beneficial owner accounts. To avail this facility, you have to give details of your beneficial owner account and the DP-ID of your DP to your broker along with the Standing Instructions for 'Delivery-In' to your Depository Participant for accepting shares in your beneficial owner account. Given these details, the Clearing Corporation/Clearing House shall send pay out instructions to the depositories so that you receive pay out of securities directly into your beneficial owner account.

Investing in equities

INVESTING in equities is riskier than and definitely demands more time than other investments. However, it can probably be more rewarding than you can imagine and certainly very exciting! World over, and even in India, stocks have outperformed every other asset class over the long run. Stocks are probably your best bet against inflation too.

If equities tempt you but you are scared to take the plunge during these volatile times, here's a complete step-by-step guide on investing in equities.

In case of sale of shares, when should the shares be given to the broker?

The delivery of shares has to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange and agreed with the broker/sub broker in writing.

In case of purchase of shares, when do I make payment to the broker?

The payment for the shares purchased is required to be done prior to the pay in date for the relevant settlement or as otherwise provided in the Rules and Regulations of the Exchange.

How long it takes to receive my money for a sale transaction and my shares for a buy transaction?

Brokers were required to make payment or give delivery within two working days of the pay - out day. However, as settlement cycle has been reduced fromT+3 rolling settlement to T+2 w.e.f. April 01, 2003, the pay out of funds and securities to the clients by the broker will be within 24 hours of the payout.

How is NIM different from Spread?

NIM = (Interest Income - Interest Expense) / Interest earning assets

Spread, on the other hand, is the difference between yield and cost of borrowing, where yield is the interest income earned on interest earning assets and cost of borrowing is interest expense charged on interest bearing liabilities.

Spread = (Interest Income/ Interest earning assets) - (Interest Expense/ Interest bearing Liabilities)

E.g. If Interest income = Rs. 150 crore

Interest expense = Rs. 80 crore

Interest earning assets = Rs. 2,250 crore

Interest bearing liabilities = Rs. 3,000 crore

NIM = (150 - 80) / 2250

= 3.11%

Spread = (150 / 2,250) - (80 / 3,000)

= 4%

How do I place my orders with the broker or sub broker?

You can either go to the broker's / sub broker's office or place an order over the phone / internet or as defined in the Model Agreement given above.

How do I know whether my order is placed?

The Stock Exchanges assign a Unique Order Code Number to each transaction, which is intimated by broker to his client and once the order is executed, this order code number is printed on the contract note. The broker member has also to maintain the record of time when the client has placed order and reflect the same in the contract note along with the time of execution of the order

How do I know if the broker or sub broker is registered?

You can confirm it by verifying the registration certificate issued by SEBI. A broker's registration number begins with the letters "INB" and that of a sub broker with the letters "INS". For the brokers of derivatives segment, the registration number begins with the letters "INF". There is no sub-broker in the derivatives segment.

How are Net Interest Margins (NIMs) calculated?

Net Interest Margin is the ratio of net interest income to average interest-earning assets

NIM = ____Net Interest Income_

Avg Interest Earning Assets

Where, Net interest income is the difference between interest income and interest expense.

And Average Interest-earning assets are loans / advances given to borrowers by banks / NBFCs. Average of the beginning to end of the period is considered for prudent calculation.

E.g. If Interest income = Rs. 150 crore

Interest expense = Rs. 80 crore

Interest-earning assets (at beginning of year) = Rs. 2,000 crore

Interest-earning assets (at end of year) = Rs. 2,500 crore

NIM = ___(150 - 80)__

(2000 + 2500) / 2

NIM =­­ _70__

2,250

NIM = 3.11%

Financial Planning

We spend more than half our lives working and saving, but hardly spend any time planning on how to put that hard-earned money to work more effectively. So, how do you plan your financial life?

Put your (financial) house in order
Financial planning starts with a review of your overall financial profile, and not at investing. Before rushing to build an investment portfolio, you need to address the following issues:

Insure your health, life and assets
Start by protecting your family's current lifestyle against events/ expenses beyond your control. Buy appropriate insurance policies for your medical expenses, life, car, and other important assets.


Calculate: How much insurance you should buy

Repay high-cost loans
Paying credit card bills on time can save you more money in interest costs than most of your investments could earn you. Ditto for borrowings that cost you more than 15% pa. So, put high-cost loans behind you, and only then start building your investment portfolio.

Put money aside for emergencies
Deploy some money in short-term investments that can be encashed on demand to help you tide over unforeseen needs and emergencies.

Draw up a savings plan
Income - Expenditure = Savings

Do not leave this equation to chance - make a savings plan. Put away as much as you can, as regularly as you can, aim to save at least 15% of your take home annual income.

Decide how much to invest

Since equities are high risk, high return instruments, how much you should invest would really depend on how much risk you can tolerate. Take this quiz to find out what your risk profile is.

Once you have done that, use this asset allocation test to calculate exactly how much of your savings you should invest in equities.

Am I required to sign any agreement with the broker or sub-broker?

Yes. For the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself for enabling the broker to maintain client registration form you have to sign the "Member - Client agreement" if you are dealing directly with a broker. In case you are dealing through a sub-broker then you have to sign a "Broker - Sub broker - Client Tripartite Agreement". Model Tripartite Agreement between Broker-Sub broker and Clients is applicable only for the cash segment. The Model Agreement has to be executed on the non-judicial stamp paper. The Agreement contains clauses defining the rights and responsibility of Client vis-à-vis broker/ sub broker. The documents prescribed are model formats. The stock exchanges/stock broker may incorporate any additional clauses in these documents provided these are not in conflict with any of the clauses in the model document, as also the Rules, Regulations, Articles, Byelaws, circulars, directives and guidelines.