Wednesday, September 3, 2008

GLOSSARY OF CAPITAL MARKET TERMS

Allotment
The allocation of new securities to an applicant for a new issue.

Annual General Meeting
Mandatory yearly meeting of a company for the purposes of receiving the directors' report and statement of accounts for the year, declaring a dividend, electing directors and auditors and determining the auditors' remuneration.

Annual Report & Accounts
A document to be forwarded to shareholders by the directors of a company on an annual basis which contains, amongst others, the annual audited accounts of the company.

Arbitrage
Buying on one exchange and selling on another at virtually the same moment to take advantage of a price variation in a company's shares listed on the two exchanges.

Articles of Association
The documents of a company that govern the management and administration of that company.
Asset Backing A handy yardstick for shareholders. It is the net assets of a company (assets less liabilities) divided by the number of shares.

At Discretion
An instruction given by a client to his broker, for the broker to buy or sell a stock at his (the broker's) discretion.

At Limit
An order placed which sets a limit on either the lowest or highest price, for which a share is bought or sold.

At Market (also At Best)
An instruction to buy or sell at market price. Allows the broker/dealer complete freedom of action. Should be treated with caution and used only when a share must be sold.

Authorised Capital
The nominal amount of capital that a limited company is permitted to raise under the capital clause in its Memorandum of Association.

Averaging
Buying more of the same shares, generally on a falling market, to lower the average cost per share. (Can also average up, thereby raising the average cost per share).

Balance Sheet
A company's year-end statement of assets and liabilities.

Bear Market
A stock market in which sellers dominate, resulting in generally falling prices.

Beta
The beta reflects the sensitivity of a share or portfolio relative to the overall market development.

Bid
Indicated willingness to purchase at a specified price.

Blue Chips
The shares of a company known to make profits in good and bad times. As there is a low risk of capital loss, the dividend and earnings yield are proportionately low.

Board Lot
Shares are normally traded in specific amounts called Board Lots, currently 100 units. Any amount less than board lots are called special lots or odd lots.

Bond
A document recording a loan and specifying the date of maturity and the rate of interest to be paid.

Bonus Issue
Distribution of capital funds (usually from a revaluation of assets or a share premium reserve) to shareholders in the form of shares for which payment is not required.

Bourse
A French term for stock exchange, grain exchange or exchange dealing in commodities.

Break-even Point
The price level at which a particular strategy neither makes nor loses money.

Broker (Stockbroker)
An agent, authorised to buy and sell shares on behalf of a client.

Brokerage
A fee charged for the broker's services. Also called commission.

Bull Market
A stock market in which buyers dominate and where prices are on a rising trend.

Buy side
Buy side is a financial term used in financial security trading. As opposed to the sell side, which refers to banks and brokerages who are required to be market makers in a given security, the buy side refers to firms which buy and sell as customers of these market makers, usually taking speculative positions or making relative value trades.

Cagamas Papers
Cagamas Berhad is the National Mortgage Corporation whose business is to promote the secondary mortgage market in Malaysia. Cagamas funds its business operation by issuing Notes, Bonds & Sanadat. Sanadat is an Islamic bond.

Calls
An instalment called up by a company on contributing or partly paid shares. A legal liability for shareholders of other than a "No Liability" company.

Capital Gain/ Loss
Profit/loss made on the sale of a capital asset.

Cash Market
The underlying market of a futures product.

CDS (Central Depository System) Account
It is an account opened under the investor’s name (applicant must be at least 18 years old) with a stockbroking company. This account will enable the investor to buy and sell shares and to carry out activities on other non-equity counters (i.e., bonds, warrant, loan stock, etc.) which are under CDS.

Closing Price
The price of a share or security at the end of a day's stock market trading.

Class of Shares
A document recording a loan and specifying the date of maturity and the rate of interest to be paid.

Commission
A fee charged for the broker's services. Also called brokerage.

Companies Act 1965
The Act of Parliament that governs companies.

Company
A separate legal entity, incorporated under the Companies Act 1965, carrying on a business or trade. A company may be private or public, limited by shares or unlimited, or limited by guarantee.

Contra Transactions
The procedures in giving orders to buy and sell in a contra transaction are the same. The only difference is that the client pays the broker or the broker pays the client for the difference in price between his buy and sell transaction. If the buy cost is higher than the sell proceeds, it results in a contra loss which the client pays to the broker. If the sell proceeds are higher, it results in a contra profit which the broker pays to the client. Contra dealing is not a right of the client but rather a privilege accorded by the stockbroking company to its clients. This means that the stockbroking company is not obliged to allow contra dealing facilities for all its clients.

Contract Month
The trading month(s) that is available to trade at any one point.

Contract Note
Document sent by brokers to clients of a purchase or sale of shares. It confirms the transaction, giving details of price, brokerage, stamp duty and clearing fee.

Convergence
This refers to the tendency of cash and futures prices coming together as a futures contract nears expiration.

Corporate bond
A debt instrument for a loan which is issued by a borrower to an investor who is the buyer of the bond and lender of the money. In return for the money, the issuer agrees to pay regular interest to the bondholder for the term of the loan and the principal sum borrowed upon maturity.

Cum
A prefix meaning "with". A share quoted "cum-dividend" means the buyer is entitled to a dividend currently attaching to it, similarly with cum-rights and cum-bonus.

Day Order
An order that is placed for execution just for that day only.

Day Trading
Refers to establishing and liquidating the same position(s) within the same trading day.

Debenture
A fixed interest security which has a maturity date and a specified rate of interest. The assets of the borrowing company are charged against the debenture issue; details of the charge are included in a Debenture Deed drawn up to protect the debenture holder.

Debt/Equity Ratio
The relationship between a company's borrowing and its shareholders' capital funds.

Delivery Month
The calendar month in which physical delivery of a futures contract must be made.

Direct Business
In relation to the KLSE, any share transactions effected outside the Exchange, including:
crossing, that is transaction between two stockbroking companies; or
"married" transaction between two clients within a stockbroking company.

Discount
The amount by which the price of a share is quoted below its paid-up value.

Dissolution
The winding up of a company by way of compulsory liquidation or voluntary liquidation.

Dividend Cover
The number of items a company's annual dividend could be paid out of current earnings.

Dividend Yield
The amount of a company's annual dividend expressed as a percentage of the current price of the share of that company.

Earnings Per Share
The amount of a company's annual profits or earning attributable to each ordinary share of that company.

Equity
Another name for the ordinary shares of a company.

Electronic Trading Platform (ETP)
ETP is the acronyms of Electronic Trading Platform. The ETP shall be the centralised price and trade repository and dissemination for the primary and secondary bond market. It is an efficient and facilitative market control system for Bursa to supervise the bond market. ETP facilitates the trading and reporting of all secondary market activities. The key business components that contribute to the business of ETP are the provisions of 1) central order book for matching, trade reporting and negotiation, 2) a comprehensive dissemination system for price/yield and trade information dissemination, 3) data storage for market history data referential maintenance for exchange administrator, 4) real time market surveillance system. The core ETP system interfaces with other systems such as the FAST (Fully automated system for Tendering) and Information vendors. The capital market is divided into the primary and secondary market. The capital market comprises the conventional market and Islamic market. Primary market activities include the insurance or lender of debt securities & money market transactions. Primary market is the source of referential data for trading in secondary market. Secondary market activities include trading of Government Securities (MGS, MTB and GII) and Private Debt Securities (PDS). Transactions that are available on ETP are Outright buy and sell, When Issued, Reallotment, Repo or Securities Buy Back Agreement, Securities Borrowing and Lending. The bond investors comprise secondary market participants such as the Financial Institutions, institutions investors and fund managers.

Ex
Prefix meaning "without", the opposite to "cum". The purchaser is not entitled to dividends, bonus shares or rights previously attached to the share.

Face Value
The actual paid-up value of a share. Seldom the same as the market value.

Float
Term given to the commencement or listing of a new company on the stock market.

Gilt Edged
A term usually associated with government or semi-government securities, more generally used on British markets.

Growth Stocks
Shares of companies with good prospects for increasing profits and capital size. Likely to bring shareholders future capital gains through a share price rise, high dividends, share bonuses or rights issues.

Guarantor
Person or entity who is legally bound to pay a financial obligation incurred by the person taking the financing if that person fails to pay.

Hedge
The purchase or sale of a futures contract as a temporary substitute for a transaction to be made at a later date, usually it involves opposite positions in the cash market and the futures market at the same time.

Initial Margin
The amount of liquid funds that a customer must put up before establishing a futures contract. The rate is determined by the Clearing House and will vary depending on the volatility of the futures market.

Indices
In relation to a stock exchange, calculations made on an index number basis to indicate the movements in the general level of prices of securities listed on that stock exchange.

Insider Trading/ Dealing
Insider trading or dealing is the purchase or sale of a company's securities effected by or on behalf of a person with knowledge of relevant but non-public material information regarding that company. The insider is in a position to make massive gains by selling or buying securities before information that might affect the price of the company's securities (price-sensitive information) is made public. Insider trading is an offence under the Companies Act 1965 and the Securities Industry Act 1983.

Issued Share Capital
The total number of shares issued by a company.

Last Trading
The final trading day of a particular futures contract as determined under an exchange’s rules. All outstanding futures contracts will be settled either by cash settlement (monetary settlement) or by physical delivery.

Liquidation
The winding up of a company, which may either be compulsory or voluntary.

Liquidity of the Market
The state of affairs in a stock market in which it is generally easy to convert securities into cash and vice versa, without causing a movement in prices.

Loan Stock
A security issued by a company in respect of a loan made by investors.

Long
One who has bought a futures contract(s) to establish a market position.

Long Hedge
The purchase of a futures contract(s) in anticipation of actual purchases in the underlying market at a future date. Used as protection against an increase in the cash price.
Manipulations
The act of transacting in the securities of a company that will have or is likely to have the effect of raising or lowering or maintaining the price of the company's securities on a stock market, with the intention of inducing other persons to purchase or subscribe for the company's securities. Such acts are illegal under the Securities Industry Act 1983.

Margin
The collection of margin on all positions held by a clearing participant is fundamental to the operations of Bursa Clearing (Derivatives) to protect itself against losses arising from a clearing participant’s default. The margin level is set to cover the maximum one-day price movement (derived from a statistical formula) with a confidence factor of at least 99%. The level of margin is based on historical price volatility, current and anticipated market conditions, and other risk factors. Bursa Clearing (Derivatives) adopts a gross margining concept where each client account of a clearing participant is margined separately. The total margin for a clearing participant is the sum of the margins for all the individual client accounts of the clearing participant. The proprietary position of a clearing participant is margined on a net position. The Approved Collateral for margin coverage are RM cash and approved foreign currencies; Approved shares; and Letters of Credit.

Margin Call
Margin call occurs whenever the market moves against the investor’s position(s). The Clearing House will demand the Clearing Member (or by a Brokerage firm) to collect from its clients the additional cash funds that is required to be topped-up into their trading account to cover the adverse price movement.

Mark-to-Market
Daily evaluation of open futures contract(s) that an investor holds to reflect profit / losses. All futures positions are marked-to-market using the settlement price.

Market Capitalisation
The total value of a listed company's shares based on current market price.

Marketable Parcel
Shares traded on a stock exchange as set in multiples based on share price.

Market Bids
A scale on which trading bids, through a stock exchange, are based.

Memorandum of Association
The document of a company that lays down its name, registered office, objectives, share capital and the liability of its members in the event of winding up.

Merger
In general terms, the amalgamation of two business enterprises into a new entity.

Minimum Bid
A minimum bid is the permissible change on the offer to buy price over the previous done or quoted price. When trading on Bursa Malaysia, bids and offers for shares within different price ranges follow different minimum bids.

Negotiated Commission
The amount of fee to be paid to a stockbroker as agreed upon between client and stockbroker and not subject to a scale stipulated by the stock exchange concerned.

Nominee Company
A company formed by a stockbroking company, bank or other institution for the purpose of holding shares on behalf of the beneficial owners of the shares.
Odd Lots
Not a marketable parcel, i.e. less than board lot. Can be bought or sold but the broker's commission rate is higher than for amounts that are at least the board lot.

Offer
Indicates willingness to sell at a certain price.

Offer for Sale
One way in which the shares of a company are offered to the public, normally through an issuing house.

Official List
In respect of the Kuala Lumpur Stock Exchange, the list of all securities which have been admitted for quotation in accordance with the Exchange's Listing Requirements.

Offsetting
Liquidation of a futures contract by purchasing or selling an identical contract. Also known as close-out.

Open Contract
Contracts which have been bought or sold without the opposite transaction taken place or closed-out by subsequent sale or purchase.

Open Interest
Number of futures contracts that are yet to be closed-out. Refers to unliquidated purchases or sales.

Option
Right to take up or sell shares at an agreed price at or before a specified future date. Prefixed with terms of "call" or "put".

Option/warrant
An instrument that gives the holder the right but not the obligation, to subscribe for a particular instrument, e.g. new ordinary shares, at a pre-determined exercise price within a stipulated validity time frame (exercise period). The warrant becomes worthless after the expiry of the exercise period.

Paid-Up Capital
The amount of a company's authorised capital which has been subscribed by shareholders.

Par Value
The nominal price of a share, loan stock or debenture.

Pari Passu
In relation to a statement that newly issued shares rank pari passu with all existing shares, such newly issued share rank equally in every respect with all the other shares of the same class previously issued.

Physical Delivery
The tender and receipt of an actual commodity, financial instrument, cash or any other instrument or product for the purpose of settlement of a futures contract.

Portfolio
A selection of securities held by an investor.

Premium
The amount by which a share is quoted above its paid-up value.

Price Earnings Ratio
The relationship between the price of a share and the earnings of the company attributable to that share, the result being expressed as the current share price divided by the latest available figure of earnings per share.

Price Limit
The maximum price fluctuation allowed on a contract during a trading session according to the rules of the Exchange.

Private Company
A company in which the number of its members is restricted to 50.

Privatisation
The Government's exercise of the transfer to private ownership companies or public enterprises owned by the Government.

Prospectus
The document to be issued by a company intending to make an issue of shares to the public.

Proxy
One who is given written authority to vote for and on behalf of a shareholder at a meeting of the company.

Quotation
The prices bid and offered by buyers and sellers for securities listed on a stock exchange.

Receiver
An official appointed to wind up the affairs of a company.

Registrar
The official or corporation responsible for maintaining a company's share register.

Registrar of Companies
The public official appointed to administer the Companies Act 1965 and the Securities Industry Act 1983.

Remisier
An agent of a stockbroking company who brings business to that company in return for a share of the brokerage or commission.

Renunciation
The action of a shareholder in not taking up new shares attached as a right to the share he currently holds by renouncing such a right.

Reserves
The accumulated capital of the company which belongs to the shareholders, and is represented by various company assets. "Secret Reserves" are those created by understating assets as a result of unnecessarily writing off investment, plant and machinery in the Profit and Loss account or making excessive provisions for contingencies.

Rights
Companies raise additional capital by offering to existing shareholders the rights to subscribe for new shares, at a price usually below the current market price. These rights, while current, attract a price of their own and can be traded on any stock exchange.

Roll Over
A spread trading procedure, which involves the shift of one month’s position into another month where the purchase and sale of 2 separate contract months are traded simultaneously. The open position of one month is immediately closed and opened into the other month at the same time.

SCORE
The acronym for "System on Computerised Order Routing and Execution", the automated trading system of the Kuala Lumpur Stock Exchange.

Scrip
Share certificate

Securities
The generic term for any instrument traded on a stock exchange.

Securities Industry Act 1983
The Act of Parliament governing the business of dealing in securities, stock exchanges and related matters in Malaysia.

Securities Commission
Established by the Ministry of Finance to streamline the activities relating to equity and futures markets.

Securities Commission Act 1993
The Act of Parliament under which the Securities Commission was established on 1 March 1993.

Securities Industry (Central Depositories) Act 1991
The Act of Parliament which governs the activities relating to the Central Depository.

Sell side
Sell side is an expression used to refer to firms that take orders from Buy side firms and then work the orders. This is typically achieved by splitting them into smaller orders which are then sent directly to an exchange or to other firms. Sell side firms are paid through commissions charged on the sales price of the stock. Sell side firms employ research analysts, traders and salespeople who collectively strive to generate ideas and execute trades for Buy side firms, enticing them to do business. Part of the research analyst's job includes publishing research reports on public companies, these reports analyze their business and provide recommendations on the purchase or sale of the stock.

Settlement Price
The daily price at which the clearing house mark-to-market all trades. Settlement prices are used to determine both margin calls and invoice prices for products that require physical delivery

Share
In relation to a company, a security representing a portion of the holder's capital in that company. There are basically two types of shares, namely ordinary shares and preference shares. 1) Ordinary shares give holders the rights of ownership of the company, such as the right to share in the profits of the company by way of dividend, the right to vote in general meeting and to elect and dismiss directors. 2) Preference Shares have a preferential position over ordinary shares, in regard to the payment of dividends and the division of the company's assets. Some preference shares may have a cumulative entitlement in that dividends not paid can be carried forward and must be paid prior to an ordinary dividend payment or distribution on liquidation. Some preference shares are "participating" with ordinary shares in all dividend above a set rate, in addition to their own preferential dividend rate. Other preference shares are redeemable at a certain date.

Share Split
When a company reduces the paid or face value of its shares, and issues further shares in the same proportion, e.g., 100,000 RM 2 ordinary shares could be split into 200,000 RM 1 ordinary shares.

Short
One who has sold a futures contract(s) to establish a market position.

Short Hedge
The sale of a futures contracts(s) to eliminate or reduce the possible decline in value of ownership of an approximate equal amount of the underlying instrument.

Short Selling
The action of a person selling shares which he does not own at the time of selling.

Spot Month
Refers to the nearest delivery month of a futures contract.

Stag
One who applies for a new security with the intention of selling it at the first available opportunity.

Stockbroker
An agent who buys and sells shares on behalf of his clients and is paid brokerage or commission for his services.

Stock Exchange
An organisation providing the market-place or facility for the buying and selling of stocks and shares.

Sukuk
Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed income, interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

Trustee Security
A security which meets the requirements of legislation relating to the use of funds by trustees.

Underwriter
An organisation, normally a merchant bank or a broking firm, that guarantees a minimum level of subscription to a share or debt issue. If public subscriptions fail to reach the minimum level, the underwriter takes up the shortfall. Underwriters often have sub-underwriters to share the risk.

Unit trusts
Pools of money managed by an investment company. They offer investors a variety of choice, depending on the fund and its investment objective.

Unsecured Note
A fixed interest security with a maturity date and specified rate of interest. Unlike a debenture, it is not secured by a charge over the issuing company's assets. Unsecured note holders rank ahead of shareholders in the event of the company's liquidation.

Vendors' Shares
Shares allotted instead of cash to persons or companies as a consideration for acquisition of property. These shares are restricted in respect to transfer.

Volume
The number of transactions in a futures contract transacted during a specified period of time.

Winding Up
The voluntary or compulsory liquidation of a company.

Yield
Similar meaning as returns.

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