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Investors Forum >> FAQ

What is a Stock Exchange ?
The Securities contract (Regulation) Act., 1956 defines a Stock Exchange as an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.

As on date there are 22 Stock Exchanges in India including the over the counter Exchange of India (OTCEI). Out of the 22 Stock Exchanges only 8 are permanent while the remaining 14 are periodical i.e. they apply to Govt. of India for recognition every three or five years. Stock Exchanges in Bombay, Calcutta, Ahmedabad, Delhi, Madras, Kanpur, Hyderabad, Bangalore. There is a special type of Stock Exchange for small and Medium Size Companies which is called over the counter Exchange of India (OTCEI).

Who are Stock Brokers ?
The stock brokers are the members of a recognised Stock Exchange who perform the function of buying and selling shares and securities on behalf of the investing public for a commission.

Why an Investor will invest in Equity Shares of a Listed Company ?

  • Shares fetch good return for their owner’s; they also offer you possibility of capital growth. Most growing concerns issue Right and Bonus shares.
  • Shares give you easy facility for loans. Bankers always grant loans against listed securities.
  • Shares give you easy liquidity. Only at a moment’s notice you can convert a listed security into cash. All that you need is only to advise your broker.
  • Shares offer you easy portability of your investments. You can carry them from one end of the world to the other.
  • You get a fair price for your investment when you sell them. Prices on the Stock Exchange are determined by two-way bids under the operation of the law of supply and demand.
  • Investment in shares gives you no trouble at the time of tax assessments. The Tax Department accepts the market value of shares for purposes of assessment.
  • By investing in shares you help the nation in its production. When you buy shares you become a part-owner of the nation’s productive apparatus.
  • Investment in shares offers you low cost of acquisition. Not only the brokerage is small as compared to the brokerage on land investment, but the Stamp Duty payable for transfer is also lower.
  • Your money in shares is safe. A duplicate is available in case of loss of scrip by fire, theft, etc.
  • Investment in shares acts as a hedge against inflation.
  • No amount is too small for investment in shares while no amount is too big either.

Stock Exchange Terms

What are Allotment Letters ?
Documents issue evidencing allotment or distribution of shares in response to applications for them or in pursuance of contracts entered into in that connection.

What is Arbitrage ?

  • The business of buying or selling a share commonly listed on more than one Stock Exchange is one share market with the intention of reversing the very same transaction in another share market in order to profit from the difference in prices for the shares between the two share markets.
  • The simultaneous buying of the same security in one market and selling it in another market at a price advantage.
  • The buying of a security convertible into another one at a price advantage when the first is selling for less than its converted equivalent.

What is Bad Delivery ?
A delivery of shares in pursuance of a transaction is considered "bad" when there is any defect in share certificate or transfer deed.

What is Bear ?
An operator who first sells and then buys shares in the expectation of a fall in share prices.

What are Bearer Securities ?
Securities which do not require registration of the owner’s name in the Company’s books.

What is Bid ?
An offer of a price to buy or sell as in auction. Business on the Stock Exchange is done by bids.

What are Blue Chips ?
Stocks of high investment quality usually of well-reputed companies.

What are Bonus Shares ?
When a company distributes shares to its share holders free of cost by capitalisation of resources, such shares are called "bonus shares".

What is Book Closing ?
The closure of the books of a company to take a record of the shareholders who are entitled to dividends or rights etc. No transfer is registered during the book-closing period.

What is Break-up Value of Shares ?
Net assets as shown in a company’s Balance-Sheet divided by the number of shares.

What is Boom ?
Boom denotes increased activity in a market arising out of greater demand.

What is Bull ?
An operator who first buys, and then sells shares in the expectation of a rise in share prices.

What is Buying-in ?
When a seller fails to deliver shares to a buyer on the stipulated date, the buyer can enforce delivery by "buying in" against the seller.

What is Backwardation ? The payment of money charges made by a bear on the shares which he borrows to deliver against his sale. Their charges usually become payable only when there are more sellers who are not in a position to deliver the documents to the buyers who demand delivery.

What are Bargains ?
Bargain means a transaction in securities, a concluded deal between two members or a member and a constituent.

What is Book Value ?
Share Capital, Reserve and Surplus, divided by the number of equity shares issued. Where preference shares also exist, they must be deducted from the total of Equity Capital, Reserve and Surplus and then the figure will be divided by its number of equity shares.

What is Brokerage ?
Commission payable to the Stock-broker for arranging the sale or purchase of shares/debentures/securities. Scale of brokerage is officially fixed under the Stock Exchange Bye-laws and Regulations and approved by the Government. Brokerage scales fixed are the maximum chargeable commission.

What is Call ?
The instalment of the capital of a company, which a share-holder is called upon to pay.

What is Clearing ?
Settlement of clearance of accounts in a Stock Exchange.

What is Contributery ?
The person - who is required to contribute to the uncalled part of the shares of a company in the event of winding-up.

What is Convertible ?
Securities which are capable of being converted into another category (frequently into ordinary shares) in accordance with the terms of the issue.

What are Coupons ?
Tokens for payment interest attached to bearer securities.

What is Cover ?
Buying of security previously sold short.

What is Cum-Dividend ?
Cum-Dividend implies that the buyer gets the current dividend.

What is Contango ?
The badla charges i.e. rate of interest paid by a bull i.e., purchaser of shares on money borrowed with which he pays for the shares bought by him. The money is borrowed from one account day to the next account day i.e. for the period of one settlement. The contango charges depend on the ruling rate of market interests and the quantum of purchase position in the shares sought to be carried over from one settlement to the other.

What is Contract ?
A note issued by a broker to his constituent setting out the number of shares bought or sold rate or price and date of conclusion and type of contract for purposes of completion by delivery and payment.

What if Constituent ?
A customer-investor who deals with a member of the Stock Exchange.

hat are Cum-Rights ?
Cum-Rights are "With Rights" attached to the shares. Implies shares bought on "C.R." basis are entitled to subscribe to any additional shares either as rights or bonus shares currently offered by the company to the existing share-holders.

What is Closing Out ?
Where a party to a contract does not fulfil delivery against sale or payment against delivery of documents, the other party can close-out the transaction against the defaulting party, the gain or loss arising from the closing-out being bourne by the defaulter. Closing-out done against failure to give delivery of documents is called buying-in. Closing-out done against failure to take, delivery of documents is called selling-out.