Chapter 36: Annexure – V: Comprehensive Glossary of Securities Market Terms

A comprehensive reference glossary defining critical capital market concepts:

• Allotment: The allocation of newly issued shares or bonds to applicants in a primary market offering based on the approved basis of allotment.
• Arbitrage: The practice of simultaneously buying a security in one market at a lower price and selling it in another market at a higher price to capture a risk-free profit margin.
• Application Supported by Blocked Amount (ASBA): An application mechanism where bid money remains blocked in the applicant's bank account until allotment, earning interest throughout.
• Asset Allocation: The strategic distribution of an investment portfolio across diverse asset classes (equities, debt, gold, real estate, cash) based on risk tolerance and goals.
• Beta (β): A statistical measure of the sensitivity or systematic risk of a security or portfolio relative to the broader market benchmark.
• Bid: The highest price a prospective buyer is willing to pay for a security at a given moment in the market order book.
• Blue-Chip Stocks: Shares of large, well-established, financially sound, and operationally resilient public corporations with a consistent record of earnings and dividends.
• Book Building: A price discovery process in public offerings where the issuer sets a price band and investors submit bids indicating the price and quantity they are willing to subscribe to.
• Bull Market: A market environment characterized by rising asset prices, economic optimism, and sustained investor confidence.
• Bear Market: A market condition characterized by falling asset prices (typically a decline of 20% or more from recent peaks), pessimism, and contracting economic expectations.
• Call Option: A derivative contract giving the buyer the right, but not the obligation, to purchase the underlying asset at a specified strike price on or before expiration.
• Clearing Corporation: An institution affiliated with a stock exchange that handles the post-trade clearing, netting, and settlement of transactions, guaranteeing counterparty performance.
• Consolidated Account Statement (CAS): A single unified monthly statement aggregating an investor's demat holdings and mutual fund investments across all depositories and AMCs under a single PAN.
• Contract Note: A mandatory legal confirmation document issued by a stock broker to a client within 24 hours of trade execution, detailing prices, quantities, and statutory levies.
• Cut-off Price: The final price discovered through book building in an IPO. Retail investors bidding at 'Cut-off' agree to buy shares at whatever clearing price is finalized.
• Dematerialization (Demat): The legal process of converting physical paper share certificates into fungible electronic balances held in a depository.

Core operational and trading terminology:

• Depository Participant (DP): An agent of the central depository (NSDL or CDSL) through whom investors open and operate demat accounts.
• Derivative: A financial contract whose value is derived from the performance of an underlying asset, index, rate, or commodity.
• Direct Plan: A mutual fund investment route where units are purchased directly from the AMC without distributor commissions, resulting in a lower Total Expense Ratio (TER).
• Dividend: A distribution of a portion of a company's net earnings to its shareholders, decided and declared by the Board of Directors.
• Electronic Contract Note (ECN): A digitally signed contract note delivered via email to an investor under secure cryptographic protocols.
• Exchange Traded Fund (ETF): An open-ended investment fund tracking an index or commodity that is listed and traded in real time on a stock exchange like an equity share.
• Face Value: The nominal or par value of a security stated by the issuer, used to calculate dividend percentages and equity capital.
• Futures Contract: A standardized, exchange-traded contract obligating the buyer to purchase and the seller to deliver an asset at a predetermined price on a future date.
• Haircut: The percentage deduction applied to the market value of a pledged security to protect against potential price drops when computing collateral margin value.
• Initial Public Offering (IPO): The first sale of equity shares by an unlisted company to the public, leading to subsequent exchange listing.
• ISIN (International Securities Identification Number): A unique 12-character alphanumeric code used globally to identify a specific financial security.
• Limit Order: An order to buy a security at or below a specified price, or sell at or above a specified price.
• Liquidity: The ease and speed with which a financial asset can be converted into cash without causing significant price impact or slippage.
• Margin: The collateral required by brokers and clearing corporations from traders to cover potential losses and fulfill contractual settlement obligations.
• Market Capitalization: The total market value of a public company's outstanding equity shares, calculated as: Current Market Price × Total Outstanding Shares.
• Mark-to-Market (MTM): The daily accounting process of revaluing open financial positions based on closing market prices to calculate unrealized gains or losses.

Advanced regulatory, settlement, and valuation terminology:

• Net Asset Value (NAV): The per-unit market value of a mutual fund scheme, calculated daily by dividing net scheme assets by outstanding units.
• Nomination: The formal registration of designated individuals entitled to receive securities and investments upon the death of the primary holder.
• Offer for Sale (OFS): A mechanism allowing existing company promoters or major shareholders to sell their shareholding to the public via exchange platforms.
• Price-to-Earnings Ratio (P/E Ratio): A valuation metric calculated by dividing a company's current stock price by its earnings per share (EPS).
• Price-Time Priority: The matching rule used by exchange electronic order engines, prioritizing the best price first, and the earliest order timestamp when prices are identical.
• Put Option: A derivative contract giving the buyer the right, but not the obligation, to sell the underlying asset at a specified strike price on or before expiration.
• Qualified Institutional Buyer (QIB): Institutional investors—such as mutual funds, banks, and FPIs—recognized as having professional financial expertise.
• Rights Issue: An offer of additional new shares made to existing shareholders in proportion to their current holding at a specified subscription price.
• Risk-o-Meter: A standardized pictorial risk indicator used by mutual funds to depict the risk tier of a scheme across six levels, from Low to Very High.
• Running Account Authorization (RAA): Written client consent allowing a broker to maintain funds in a running ledger rather than settling balances after every trade.
• SCORES: SEBI Complaints Redress System—SEBI's centralized digital platform for handling investor grievances against market intermediaries and listed firms.
• Settlement Guarantee Fund (SGF): A reserve fund maintained by clearing corporations to guarantee the financial completion of all executed trades even if a member defaults.
• SMART ODR: Securities Market Approach to Resolution Through ODR—SEBI's online platform for conciliation and arbitration of investor disputes.
• Stop-Loss Order: An order placed to exit an existing position automatically if market prices move against the trader beyond a predetermined threshold.
• Total Expense Ratio (TER): The annual percentage fee debited to a mutual fund scheme's assets to cover investment management, administrative, and distribution costs.
• Value at Risk (VaR): A statistical risk management tool that calculates the maximum expected loss over a specific timeframe at a designated confidence interval.
• Yield to Maturity (YTM): The total anticipated annual rate of return on a bond if held until its scheduled maturity date, assuming all coupon payments are reinvested at the same rate.