Unknown Concepts

Some of the popular terms of the stock market which we hear every now and then but most of us are illiterate about the topics and the importance they hold in stock market. Let us discuss the most popular ones.

1. Circuit Filters

SEBI has come with a set of rules to determine the fixed price bands for different securities within which they can move in a day to check the volatility of shares. As per Sebi directive, all securities traded at or above Rs.10/- and below Rs.20/- have a daily price band of ±25%. All securities traded below Rs. 10/- have a daily price band of ± 50%. Price band for all securities traded at or above Rs. 20/- has a daily price band of ± 8%. However, the now the price bands have been relaxed to ± 8% ± 8% for select 100 scrips after a cooling period of half an hour. The previous day's closing price is taken as the base price for calculating the price. As the closing price on BSE and NSE can be significantly different, this means that the circuit limit for a share on BSE and NSE could possibly be different.

2. Insider Trading

Informations which are sensitive in the form of influencing the price of a scrip, is procured or/and used from sources other than the normal course of information output for unscrupulous inducement of volatility or personal profits, it is called as Insider trading. Insider trading refers to transactions in securities of some company executed by a company insider. Although an insider might theoretically be anyone who knows material financial information about the company before it becomes public, in practice, the list of company insiders (on whom newspapers print information) is normally restricted to a moderate-sized list of company officers and other senior executives. Most companies warn employees about insider trading. SEBI has strict rules in place that dictates when company insiders may execute transactions in their company's securities. All transactions that do not conform to these rules are, in general, prosecutable offenses under the relevant law.Insider trading is illegal in India.

3. Going Short

If you do not have shares and you sell them it is known as going short on a stock. Generally a trader will go short if he expects the price to decline. In a rolling settlement cycle you will have to cover by end of the day on which you had gone short.

4. Stock Traded Under Demat Form

Securities and Exchange Board of India (SEBI) has already specified for settlement only in the dematerialized form in for 761 particular scripts. Investors interested in these stocks receive shares only in demat form without any instruction to your broker. While SEBI has instructed the institutional investors to sell 421 scripts only in the demat form. The shares by non institutional investors can be sold in both physical and demat form. As there is a mix of both form of stocks, it is possible if you have purchased a stock in this category, you may get delivery of both physical and demat shares.

5. Rolling Settlement Cylce

In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. At NSE and BSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For arriving at the settlement day all intervening holidays, which include bank holidays, NSE/BSE holidays, Saturdays and Sundays are excluded. Typically trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday and so on.6/.

6. Important Facts for NRI's

In India there is no borrowing of money or shares by your broker to make sure that the settlement takes place as per schedule. In Indian context, buying/selling on margin refers to building a leveraged position at the beginning of the settlement cycle and squaring off the trade before the settlement comes to end. As the trade is squared off before the settlement cycle is over, there is no need to borrow money or shares.


7. Badla Financing

The word 'Badla', literally means something in return. Badla is the charge, which the investor pays for carrying forward his position. It is a hedge tool where an investor can take a position in a scrip without actually taking delivery of the stock. He can carry-forward his position on the payment of small margin. In the case of short-selling the charge is termed as 'undha badla'.