Glossary of ‘Financial Terms’ starting with Alphabet ‘B’, i.e. ‘Meaning’ or ‘Definition’ of Common and Unusual terms relating to Accounting, Auditing, Company Law, GST, Income Tax, Investments, etc., along with the ‘Context’ in which they are used.
Baby Bond (U.S)
A bond with a face value of less than $1000 usually in $100 denominations.
The part of a firm that is responsible for post-trade activities. Depending upon the organisational structure of the firm, the back office can be a single department or multiple units (such as documentation, risk management, accounting or settlements). Some firms have combined a portion of these responsibilities, usually found in the back office, particularly those related to risk management, into what they term as a middle office function.
Backwardation/ Ulta Badla/ Undha Badla
The payment of money charges made by a seller of shares which he borrows to deliver against his sale. These charges become payable only when there are more sellers who are not in a position to deliver against their sale. These charges become payable to the buyer, when the seller is not in a position to deliver the documents to the buyers who demand delivery.
Carrying forward of transactions from one settlement period to another without effective delivery. This is permitted only in specified securities and is done at the making up price which is usually the closing price of the last day of settlement.
Badla Charge/ Contango
Consideration or interest paid to the seller by the buyer for carrying over a transaction from one settlement period to another.
A financier who lends money to both buyers and sellers of shares when they are not able to pay or deliver.
Bail out of issue
When the public issue do not get good response from the public or fails to garner minimum subscription ,the issuer or promoters approaches the financiers or some persons to arrange subscription to bail out the issue for consideration of buy-back shares subsequent from the financiers at higher price or compensating the financier by payment of interest on the amount of the subscription money paid in the public issue.
An accounting statement of a company’s assets and liabilities, provided for the benefit of shareholders and regulators. It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed.
Funds which aim to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.
The phenomenon whereby a financial institution combines the selling of banking products and insurance products through the same distribution channel. Popular in the early 1990s bancassurance rested on the premise that it is easy to cross-sell banking and insurance services because customers feel confident buying insurance from the same institution where they keep their savings.
Band Ke Bhao
Unauthorized trading in securities done outside official hours.
A short-term credit investment created by a non-financial firm and guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market.
Bank investment contract
A security with an interest rate guaranteed by a bank. It provides a specific yield on a portfolio over a specified period.
Banker to an issue
A scheduled bank carrying on all or any of the issue related activities namely acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of dividend or interest warrants.
In a futures market, basis is defined as the cash price (or spot price) of whatever is being traded minus its futures price for the contract in question. It is important because changes in the relationship between cash and futures prices affect the values of using futures as a hedge. A hedge, however, will always reduce risk as long as the volatility of the basis is less than the volatility of the price of whatever is being hedged.
One hundredth of a percentage point. Basis points are used in currency and bond markets where the size of trades mean that large amounts of money can change hands on small price movements . Thus if the yield on a Treasury bill rose from 5.25% to 5.33% the change would have been eight basis points.
The risk that the relationship between the prices of a security and the instrument used to hedge it will change, thereby reducing the effectiveness of the hedge. In other words ,risk of varying fluctuations of the spot and the futures price between the moment at which a position is opened and the moment at which it is closed.
Basis of Allotment
An allotment pattern of an issue among different categories of applicant.
A pessimist market operator who expects the market price of shares to decline. The term also refers to the one who has sold shares which he does not possess, in the hope of buying them back at a lower price, when the market price of the shares come down in the near future.
A variety of takeover strategy that seeks to hurry target company managements to recommend acceptance of a tender offer in a short period of time.
A weak or falling market characterized by the dominance of sellers.
A false signal indicating that the rising trend of a stock or index has reversed when in fact it has not. This can occur during a bear market reversal when short sellers believe the markets will sink back to its declining ways. If the market continues to rise, the shorters get trapped and are forced to cover their position at higher prices.
Bearer Securities/ Bearer Bonds
Securities which do not require registration of the name of the owner in the books of the company. Both the interest and the principal whenever they become due are paid to anyone who has possession of the securities. No endorsement is required for changing the ownership of such securities.
Combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications (i.e. irrational behavior).
A security that is seen as a significant indicator of the direction in which a market’s price is moving.
Security used as the basis for interest rate calculations and for pricing other securities. Also denotes the most heavily traded and liquid security of a particular class.
Indicators used to provide a point of reference for evaluating a fund’s performance.
The true owner of a security. Registered holder of the shares may act as a nominee to the true shareholders/ owners.
Benefit cost ratio
A ratio attempting to clearly identify the relationship between the cost and benefits of a proposed project. This ratio is used to measure both quantitative and qualitative projects, as sometimes benefits and costs cannot be measured exclusively on financial terms.
A measure of the volatility of a stock relative to the market index in which the stock is included. A low beta indicates relatively low risk; a high beta indicates a high risk.
An offer of a price to buy as in an auction. Business on the Stock Exchange is done through bids. Bid also refers to the price one is willing to pay for a security.
The difference between the stated and /or displayed price at which a market maker is willing to sell a security and the price at which he is willing to buy it.
Bid – Ask spread
The difference between the bid price and the ask price.
An arrangement between two parties in which they exchange only the net difference in their obligations to each other. The primary purpose of netting is to reduce exposure to credit/ settlement risk.
A mathematical model that provides a valuation technique for options. The model was adapted to provide a framework for valuing options in futures contracts.
Where the name of the transferee is left blank on share transfer form, it constitutes a blank transfer. A person depositing shares with a stock broker for immediate or eventual sale, has to sign a blank transfer form. It is also done when shares are mortgaged, so that in the event of non payment the mortgager can fill in his own name in the transferee column and sell the share.
Buying and selling a block of securities usually takes place when restructuring or liquidating a large portfolio.
A security offering that sells out almost immediately.
The best rated shares with the highest status as investment based on return, yield, safety, marketability and liquidity.
Blue Sky Laws (U.S)
Laws passed by the states in the U.S. to protect investors. The term traces its origin to a remark made by a Kansas legislator that unless a state passed effective legislation promoters would try to sell shares in the blue sky to unsuspecting investors.
Boiler Room (U.S)
It is a practice of using high pressure sales tactics. This practice is sometimes used by stock brokers who try to sell investors the firm’s house stock. A broker using boiler room tactics only gives customers promising information about the company and discourages them from doing any outside research.
A negotiable certificate evidencing indebtedness – a debt security or IOU, issued by a company, municipality or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bondholder periodic interest payments over the life of the loan.
Public unit trust which invests in government fixed interest or corporate fixed interest securities and investments.
Shares issued by companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.
Book building process
A process undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.
The periodic closure of the Register of Members and Transfer Books of the company, to take a record of the shareholders to determine their entitlement to dividends or to bonus or right shares or any other rights pertaining to shares.
A Lead Merchant Banker who has been appointed by the issuer company for maintaining the book. The name of the Book Running Lead Manager will be mentioned in the offer document of the Issuer Company.
The net amount shown in the books or in the accounts for any asset, liability or owners’ equity item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less accumulated depreciation. Also called carrying value. The book value of a firm is its total net assets, i.e. the excess of total assets over total liabilities.
A condition of the market denoting increased activity with rising prices and higher volume of business resulting from greater demand of securities. It is a state where enlarged business, both investment and speculative, has been taking place for a sufficiently reasonable period of time.
Breadth of the Market
The number of securities listed on the market in which there is regular trading.
A rapid and sharp decline in a security or index.
Break Even Point
The stock price (or price) at which a particular strategy of transaction neither makes nor loses money. In options, the result is at the expiration date in the strategy. A dynamic break-even point changes as time passes.
Broad based Fund (sub account)
A fund which has at least 20 shareholders and no single investor holds more than 10% of shares and units of the Fund. In case, if any investor holds more than 10% of shares or units of the fund, then it should be broad based.
A member of a Stock Exchange who acts as an agent for clients and buys and sells shares on their behalf in the market. Though strictly a stock broker is an agent, yet for the performance of his part of the contract both in the market and with the client, he is deemed as a principal, a peculiar position of dual responsibility.
Commission payable to the stockbroker for arranging sale or purchase of securities. Scale of brokerage is officially fixed by the Stock Exchange. Brokerage scales fixed in India are the maximum chargeable commission.
Any person, other than a bank engaged in the business of buying or selling securities on its own behalf or for others.
A speculative sharp rise in share prices which like the bubble is expected to suddenly burst.
Bucket Shop (U.S)
A fraudulent brokerage firm that uses aggressive telephone sales tactics to sell securities that the brokerage owns and wants to get rid of. The securities that they sell are typically poor investment opportunities, almost always penny stocks. A brokerage that makes trades on a client’s behalf and promises a certain price. The brokerage, however, waits until a different price arises and then makes the trade, keeping the difference as profit. A stock brokerage operation in which the broker accepts the client’s money without ever buying the stock ordered. Instead the money is used for another purpose, the broker gambling that the customer is wrong and that the market price will decline and the stock can be bought at a lower price.
A situation where, in an attempt to make a short-term profit, a broker confirms an order to a client without actually executing it. If the eventual price that the order is executed at is higher than the price available when the order was submitted, the customer simply pays the higher price. On the other hand, if the execution price is lower than the price available when the order was submitted, the customer pays the higher price and the brokerage firm pockets the difference. It also means directly or indirectly taking the opposite side of client’s order into the brokers own account or into an account in which the broker has interest, without open and competitive execution of the order on an exchange.
A market player who believes prices will rise and would, therefore, purchase a financial instrument with a view to selling it at a higher price. Opposite of a bear.
A rising market with abundance of buyers and relatively few sellers.
A bond denominated in sterling but issued by a non British borrower.
A rising trend in prices.
A day on which the Stock Exchange is open for business and trading in securities.
An option strategy involving the simultaneous sale of an at the money straddle and purchase of an out of the money strangle. Potential gains will be seen if the underlying remains stable while the risk is limited should the underlying move dramatically. It’s also the simultaneous buying and selling of call options at different exercise prices or at different expiry dates.
The repurchase by a company of its own stock or bonds.
Buyer’s Comparison Memo/ Objection Statement
Since normally comparison memos are only issued to the seller, the buyer figuring in the memo may not have any idea about the rejection by the computer of that transaction till the seller contacts him. Therefore, he is issued a Buyers Comparison Memo.
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 in an auction.
Buy on margin
To buy shares with money borrowed from the stockbroker, who maintains a margin account for the customer.