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COMPANIES
DEMATERIALIZATION
MARKETS

COMPANIES

Annual Report

An audited document as prescribed under the Companies Act and sent to the shareholders of a public company or a mutual fund at the end of each fiscal year is called an annual report. The report provides information on the company's financial results for the year along with comments on its future outlook.
Annual Results

Financial results issued by the company at the end of each financial year indicating its increase/decrease in profits/losses and sales are called annual results.
Quarterly results

Financial results issued by the company every three months indicating its increase in profits/losses and sales are called quarterly results.
Current Assets

Assets like bills receivables, cash, debtors, etc, which can be converted into cash within a short span of time are called current assets.
Current liabilities

An audited document as prescribed under the Companies Act and sent to the shareholders of a public company or a mutual fund at the end of each fiscal year is called an annual report. The report provides information on the company's financial results for the year along with comments on its future outlook.
Provisions

Any expense likely to be incurred in future and having a bearing on the firm's profitability provided for earlier is called a provision.
Other Income

Any income earned by a company other than from its normal course of operations is called 'Other Income'. For example, an iron and steel producing company may earn dividend or bonus from its share investments in a telecom company. Since the income is not earned from its normal course of business, i.e., manufacture and sale of steel pipes, the income is categorized as Other Income.
Net Profit

The profit earned after deducting interest, dividend and income-tax expenses from the gross profit is called the net profit
Book Value

The original value of a stock, as mentioned in the company's books of accounts without adjusting for expenses, like depreciation, is called the book value.
Market Capitalization

Market Capitalization of a company is the current market price of a share multiplied by the total number of outstanding shares.
Dividend

Dividend is be defined as a part of the company's profit which is paid to equity and preference shareholders.
Return on Capital Employed

Return on Capital Employed is defined as a measure of return that a company realizes from its capital. It is calculated as profit before interest and tax, divided by the difference between the total assets and current liabilities. The resulting ratio represents the efficiency with which capital is being utilized to generate revenue.
Return on Net Worth or Return on Equity

Return on Net Worth is defined as a measure of Profit After Tax/Net Worth. Here, Profit After Tax = Net Profit - Preference Dividend, and, Net Worth = Ordinary Equity + Reserves - Revaluation Reserve.
Debt/Equity Ratio

The debt/equity ratio is calculated by dividing the total debts (borrowed funds) by the sum of share capital, development reserve, investment property revaluation reserve, investment revaluation reserve and the retained profits.
Secured Loans

Any asset hypothecated or any charge made on a firm's assets by a bank or any other financial institution as a collateral security against a loan taken is a secured loan.
Unsecured Loan

When a loan is taken without any charge on the firm's assets, it is called an unsecured loan.
Sundry Debtors

When goods/services are sold on credit, the suppliers/buyers are called debtors as they owe money to the firm.
Sundry Creditors

When goods/services are purchased on credit, the suppliers are sundry creditors as the firm owes money to them.
Profit earning ratio

Profit earning ratio is calculated by dividing the current stock price divided by earnings per share (EPS). If the ratio is higher than other stocks in its industry, it means the investors are expecting a higher rate of earnings for the stock.
Earnings per share (EPS)

The portion of a company's profit allocated to each outstanding share of common stock is called the earnings per share (EPS). It is calculated as the net profit - dividend on the preferred stock/outstanding shares.
Depreciation

The allocation of the cost of an asset over a period of time for accounting and tax purposes is called depreciation. It is also referred to as the decline in the value of a property due to the general wear and tear or obsolescence.

DEMATERIALIZATION

What is Dematerialisation?

Dematerialisation is the process by which physical share certificates are cancelled and credited in electronic form in the client's account on a highly secure system at the depository.
Can any share certificate be dematerialised?

Only those companies which are already listed in the securities list of depositories can dematerialise their shares.
How much time it takes to get the shares dematerialised?

The dematerialisation process normally takes between 15-30 days.
What is a Depository?

A depository is similar to a bank. It holds securities like shares, debentures, bonds, Government Securities, Commercial Papers, units etc. of investors in electronic form and provides services related to transactions in securities. Depository is the one, where all the securities are kept in demat form of all the clients having their demat account.
What benefits do depositories provide?
Depositories provide a number of benefits like:
- Immediate transfer of securities.
- No stamp duty on transfer of securities.
- Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.
- Reduction in paperwork involved in transfer of securities
- Reduction in transaction cost
- Nomination facility
- Changes in address recorded with DP gets registered electronically with all companies in which investor holds securities eliminating the
  need to correspond with each of them separately
- Transmission of securities is done by DP eliminating correspondence with companies; convenient method of consolidation of folios/accounts
- Holding investments in equity, debt instruments and Government securities in a single account
- Automatic credit into demat account, of shares, arising out of split / consolidation / merger etc.
What are the services provided by the depositories?
Depositories provide the following services:
- Opening the demat account
- Dematerialization i.e., converting physical certificates to electronic form
- Rematerialization i.e., conversion of securities in demat form into physical certificates
- Facilitating repurchase / redemption of units of mutual funds
- Electronic settlement of trades in stock exchanges connected to NSDL
- Pledging / Hypothecation of dematerialized securities against loan
- Electronic credit of securities allotted in public issues, rights issue
- Receipt of non-cash corporate benefits such as bonus, in electronic form
- Freezing of demat accounts, so that the debits from the account are not permitted
- Nomination facility for demat accounts
- Services related to change of address
- Instructions to your DP over Internet through SPEED-e facility. (Please check with your DP for availing the facility)
- Account monitoring facility over Internet for clearing members through SPEED facility
- Other facilities viz. holding debt instruments in the same account, availing stock lending/borrowing facility, etc.
Who is a Depository Participant (DP)?

SKI is a Depository Participant. Depositories appoint agents or depository participants (DPs) approved by SEBI to provide its services to investors. According to SEBI regulations, only three categories of entities i.e. banks, financial institutions and stock exchange members [brokers] registered with SEBI can become DPs.
What is the procedure for opening an account with a DP?

An investor needs to fill an account opening form for opening a demat account. The DP-Client Agreement provides the details about the rights and duties of investors and DPs. Along with the account opening form, investors have to submit the following documents:
Proof of Identity:

Investors signature and photograph must be authenticated by an existing demat account holder with the same DP or by your bank. Alternatively, investors can submit a copy of Passport, Voters Id Card, Driving License or PAN card with photograph.
Proof of Address:

Investors also have to submit a copy of Passport, Voters Id Card, Driving License or PAN card with photograph, ration card or bank passbook as proof of address.
Passport-size photograph.

The investor has to carry all original documents to the DP for verification and should obtain a copy of the agreement and schedule of charges for future reference.
How many accounts can an investor open with the same DP?

An investor is not bound by any restrictions and can open more than one account with the same DP.
Should investors maintain a minimum account balance of securities with DPs?

An investor can maintain a zero balance in a demat account.
Can any another person operate a demat account on the basis of a power of attorney?

Any person authorised by an account holder is allowed to operate by executing a power of attorney and submitting it to the DP.
What is 'Standing Instruction' given in the account opening form?

In a bank account, any credit to the account is credited only when a 'paying in' slip is submitted together with cash / cheque. Similarly, in a depository account 'Receipt in' form has to be submitted to receive securities in the account.
How investors can transfer their demat account from one DP to another?

An investor can submit an account closure request to the DP for transferring the account from one DP to another. Is it possible to demat debt instruments, mutual fund units, government securities through a demat account? Investors are allowed to dematerialise and hold investments like debt instruments, mutual fund units, government securities in a single demat account.
Is it possible to convert electronic holdings back into physical certificates?

Conversion of securities to physical form may be availed by requesting the DP.
What settlement details are required on the delivery instruction slip?

Every settlement is identified by a combination of a market type and a settlement number. Investors are required to mention the appropriate settlement details on the delivery instruction slip while transferring the shares to the broker's account. These settlement details are also available on the contract note issued by the broker.
What is the 'execution date' given on the delivery instruction form?

Execution date is the date on which securities will be actually debited from the investor's account. The execution date written on the delivery instruction has to be entered by the DP.
How do investors receive dividend / interest or other cash entitlements?

Investors will receive their payments from the company through the ECS (Electronic Clearing Service) facility or will be issued warrants on which investor's bank account details are printed.
How do investors receive bonus shares or other non-cash entitlements?

Investors will have their entitlements directly credited by the company to the depository account.
Can investors confirm whether the bonus/rights entitlement is credited to their account?

An allotment advice will be sent by the Issuer/ its R&T agent for bonus/ rights entitlement. The Transaction Statement given by the DP, will also show the bonus/ rights credit into the account. The quantity shown in the advice and statement of transaction should match.

MARKETS

What is the customer's protection fund?

This is a fund created to compensate investors for genuine losses suffered against the defaulter members of the exchange.
What is the Trade Guarantee Fund?

This system guarantees settlement of trades and helps to maintain market equilibrium by ensuring payment against defaulting members of the Exchange.
What is an auction?

An auction is a mechanism utilised by the exchange to fulfill its obligation to a counter-party member, when a member fails to deliver good securities or make the payment.
What is a bad delivery cell?

When a delivery of share turns out to be bad because of company objection, the investor can approach the bad delivery cell of the respective stock exchange where the company is listed through his broker for correction or replacement with good delivery.
What do you mean by bid and offer?

Bid is the price of a share a prospective buyer is prepared to pay for a particular scrip, while offer is the price at which a share is offered for sale.
What is brokerage? What is the maximum brokerage charged?

Brokerage is the commission charged by a broker for purchase/sale transaction done through him. As per SEBI norms, the maximum brokerage chargeable by brokers for purchase/sale transactions is 2.5% of the total trade value.
What are circuit breakers?

Circuit breakers are a mechanism by which exchanges temporarily suspend the trading in a security when its prices get volatile and tend to breach the price band.
What do you mean by clearing?

Clearing refers to the process by which transactions between members are settled through multilateral netting.
Describe a cum-bonus share?

The share is described as cum-bonus when a purchaser is entitled to receive the current bonus.
What is cum-rights?

A share is described as cum-rights when a purchaser is entitled to receive the current rights.
What is ex-bonus?

The share is described as ex-bonus when a purchaser is not entitled to receive the current bonus, the right to which remains with the seller.
What is ex-rights?

The share is described as ex-rights when a purchaser is not entitled to receive the current rights, the right to which remains with the seller.
Describe forward trading?

Forward trading refers to the trading mechanism where the contracts traded today are settled at some future date at prices decided today.
What is insider trading?

Trading in a company's shares by a connected person having non-public and price sensitive information such as expansion plans, financial results and takeover bids, by virtue of his association with the company, is called insider trading.
What is market lot?

A market lot is the minimum number of shares of a particular security that must be transacted on the exchange. In demat scrips, the market lot is fixed at one single share.
What is the no-delivery period?

Whenever a book closure or a record date is announced by a company, the exchange sets up a no-delivery period for that security. During this period, trading is permitted in that security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for corporate benefits is clearly determined.
What is an odd lot?

The numbers of shares that are less than the market lot are known as odd-lots. Under the scrip-based delivery system, these shares are normally traded at a discount to the prevailing price for the marketable lot.
How do investors receive bonus shares or other non-cash entitlements?

Investors will have their entitlements directly credited by the company to the depository account.
What is order-driven trading?

It is a trading initiated by buy/sell orders from investors/brokers.
What is quote-driven trading?

On the flip side, a trading where broker / market makers give buy / sell quotes for a scrip simultaneously is known as quote-driven trading.
What is the over-the-counter trading?

It means trading in those stocks which are not listed on a stock exchange.
Describe pay-in and pay-out?

Pay-in day is the designated day on which the securities or funds are delivered / paid in by the members to the clearing house of the exchange. On the other hand, pay-out is the designated day on which securities and funds are delivered / paid out to the members by the clearing house of the exchange.
What do you mean by price band?

The daily/weekly price limits within which price of a security is allowed to rise or fall is the price band for that particular stock?
Describe price rigging?

When a person or persons acting in concert with each other collude to artificially increase or decrease the price of a security, the process is called price rigging.
What do you mean by record date?

Record date is the date on which the beneficial ownership of an investor is entered into the register of members. Such a member is entitled to get all the corporate benefits of the stock?
What is rematerialisation of shares?

Rematerialisation is the process through which shares held in electronic form in a depository are converted back into physical form.
Describe screen-based trading?

When buying/selling of securities is done using computers and matching of trades is done by the computer, the process is called screen-based trading.
What is settlement?

It refers to the scrip-wise netting of trades by a broker after the trading period is over.
What is a settlement guarantee?

Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades, even if a party defaults to deliver securities or pay cash.
What do you mean by splitting/consolidation of shares?

The process of splitting shares that have a high face value into shares of a lower face value is known as share splitting. The reverse process of combining shares with a low face value into one share of higher value is known as consolidation.
What is spot trading?

It means trading by delivery of shares and payment for the same on the date of purchase or on the next day.
What is a spot transfer of shares?

The instruction given by a registered holder of shares to the company to stop the transfer of shares as a result of theft or loss is known as spot transfer.
What is trade and settlement guarantee in trading?

Trade guarantee is the guarantee provided by the clearing corporation for all trades that are executed on the exchange. In contrast, the settlement guarantee guarantees the settlement of trade after multilateral netting.
What is trading for delivery?

Trading for delivery is the trading conducted with an intention to deliver shares as opposed to a position that is squared off within the settlement.
What is transfer deed?

A transfer deed is a form that is used for effecting transfer of shares or debentures and is valid for a specified period. It should be sent to the company along with the share certificate for registering the transfer. The transfer deed must be duly stamped and signed by or on behalf of the transferor and transferee and complete in all respects.
What is a book building issue?

In a book building issue, the issuer appoints lead managers who collect bids within an indicated fixed band from prospective investors. A common price is then arrived at for offloading shares, enabling better pricing with a wide institutional investor base.
What is partial and 100% book building?

In partial book building, 75% of the issue is the book-built portion and the remaining 25% is to be offloaded in the general market. In 100% book building, the entire issue is reserved for the book-building portion and nothing is kept for the general market.
Describe margin trading?

Margin trading allows investors to buy a stock by paying a part of the transaction value with the rest being financed by the broker.
What is Securities Lending and Borrowing?

In Securities Lending, an investor who has sold shares without holding the securities (short-selling) is allowed to borrow securities from clearing corporations to be able to deliver them to the buyer. Borrowing of securities implies that investors can lend their securities, which they do not intend to sell for some time, to clearing corporations and earn return on it for the period.
What is a green-shoe option?

A Green-shoe Option or an over-allotment offer is an option which is sometimes a part of an underwriting agreement which allows the underwriter to purchase and sell additional shares if the market's demand for the shares is greater than originally expected.
What is rolling Settlement?

In rolling Settlement, a settlement cycle starts and ends on the same day and is done on a continuous basis.
What is share buyback?

When a company repurchases its own shares from the market, it is called a share buyback.
What is an open offer?

A company offering a set number of new shares at a specified price to the investing public is known as an open offer.
What is preferential allotment of shares?

A fresh allotment of shares to promoters, their friends and relatives on a preferential basis is called preferential allotment
What is stock split?

A proportionate increase in the number of outstanding shares by splitting the face value in a desired ratio is called stock split. For example, a share of face value Rs 100 may be split into 10 shares of Rs 10 each.
What is a bonus issue?

Shares issued to existing holders by capitalising the company's free reserves, like share premium, is called a bonus share.
What is a rights issue?

Rights issue is defined as an issue of a new equity in which the existing shareholders are given a right to subscribe to the issue.