CAC 40 Index: Paris-based stock market index of the leading 40 French shares.
CEDEL: One of the two major organizations in the Eurobond market which clears or handles the physical exchange of, securities and stores securities. Based in Luxembourg, the company is owned by several shareholding banks and operates through a network of agents.
Calendar Spread: The simultaneous sale and purchase of either call or put with the same strike price but different expiration months.
Call Money: The unpaid installment of the share capital of a company, which a shareholder is called upon to pay.
Call Option: An agreement that gives an investor the right, but not the obligation, to buy an instrument at a known price by a specified date. For this privilege, the investor pays a premium, usually a fraction of the price of the underlying security.
Cap: Interest rate contract where the purchaser receives from the seller, at the end of each period prior to the expiry of the contract, the difference between current interest rates and a strike interest rate, should interest rates rise above the strike. For example, an agreement to receive money for each month during which LIBOR exceeds 5%.
Capital Asset Pricing Model (CAPM): An economic theory that describes the relationship between risk and expected return and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is a systematic risk because it cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium.
Cash Flow Risk: Risk that an investor's scheme is forced to sell assets to meet liabilities. This can occur when the level of cash flow required to meet benefit payments exceeds the contribution and investment income
Capital Growth: Appreciation in the capital or market value of an investment, as opposed to income (e.g. dividends) which may be received from the investment from time to time.
Capital Market: Any financial market upon which securities are traded
Capital Gain: Profit arising out of the sale or transfer of an asset.
Capital Gain Distribution: Profits are distributed to unitholders/shareholders resulting from the sale of securities held in the fund’s portfolio for more than one year.
Capitalisation-Weighted Index: Index where the weightings applied to each component security are based on their relative market capitalizations.
Call: A notice for payment of an installment or the entire unpaid sum of a partly paid share. It also means a demand by a brokerage firm to the client for a partial payment of the client’s debt or deposits further securities because the value of securities he had given as collateral has fallen.
Carry Trade: Practice of borrowing in currencies with low associated yields and lending in high-yielding currencies. If currency markets are efficient, there should be no gains to the trader, since the yield differential will be offset by changes in the relative exchange rates.
Carry Over Margin: The margin fixed by the Stock Exchange and payable by the members for carrying over the transactions from one settlement period to another.
Cash Market: A market for the sale of security against immediate delivery, as opposed to the futures market.
Cash Settlement: The settlement provision on some options and futures contracts that do not require delivery of the underlying security. For options, the difference between the settlement price on the underlying asset and the option’s exercise price is paid to the option holder at exercise. For futures contracts, the exchange establishes a settlement price on the final day of trading, and all remaining open positions are marked to market at that price.
Central Listing Authority: The authority was set up to address the issue of multiple listings of the same security and to bring about uniformity in the due diligence exercise in scrutinizing all listing applications on any stock exchanges. The functions include processing the application made by anybody corporate, Mutual Fund, or collective investment scheme for the letter of recommendation to get listed at the stock exchange, making recommendations as to listing conditions, and any other functions as may be specified by the SEBI Board from time to time.
Certificate of Deposit: A negotiable certificate issued by a bank, usually for a period of one month to a year, as evidence of an interest-bearing time deposit. This may also be offered at a discount.
Channel (TA): A trading range between two parallel lines in which prices move. The slope of the channel represents the direction of the trend.
Chalu Upla: Adjustment of position between two brokers either to avoid margin or to cross the trading or exposure limit.
Chart (TA): The graphical expression of a financial market’s behavior over a period of time.
- Bar Charts: charts that consist of rectangular bars whose lengths are proportional to the value they represent. Bar charts are used for comparing two or more values – they consist of an opening foot, a vertical line, and a closing foot. Each bar includes the open, high, low, and close of the timeframe, and also shows the direction (upward or downward), and the range of the timeframe.
- Candlestick Charts: charts that consist of a wide vertical line, and a narrow vertical line. Each “candlestick” graphically illustrates the open, high, low, and close of the timeframe, the direction (upward or downward) of the timeframe, and the range of the timeframe.
- Line Charts: charts that consist of closing prices connected with straight lines.
Charting Software: A software or package that takes the market data and displays that data in a variety of charts. Typically, the user can modify the appearance and layout of the charts and add features such as indicators, trendlines, support and resistance levels, etc.
Chartist Analysis: Using charts of financial asset price movements (often with the aid of additional descriptive statistics) to try to infer the likely course of future prices and thus construct forecasts and trading strategies.
Cheapest to Deliver Issue: The acceptable Treasury security with the highest implied repo rate. It is the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.
Chinese Walls: Artificial barriers to the flow of information set up in large firms to prevent the movement of sensitive information between departments.
Churning: An unethical practice employed by some brokers to increase their commissions by excessively trading in a client’s account. In the context of the stock market, churning refers to a period of heavy trading with few sustained price trends and little movement in stock market indices.
Circuit Breaker: A system to curb excessive speculation in the stock market, applied by the Stock Exchange authorities, when the index spurts or plunges by more than a specified percent. Trading is then suspended for some time to let the market cool down.
Circular Trading: A fraudulent trading scheme where sell or buy orders are entered by a person who knows that the same number of shares at the same time and for the same price either have been or will be entered. These trades do not represent a real change in the beneficial ownership of the security. These trades are entered with the intention of raising or depressing the prices of securities.
Clean Float: Where there is no official intervention – the price is permitted to vary in line with the market forces.
Clearing: Settlement of accounts of brokers in a stock exchange. Dates are fixed by the stock exchange for the first and last business day of each clearing.
Clearing House: A department of an exchange or a separate legal entity that provides a range of services related to the clearance and settlement of trades and the management of risks associated with the resulting contracts. A clearing house is often a central counterparty to all trades, that is, the buyer to every seller and the seller to every buyer.
Clearing member: A member of a clearing corporation or clearing house of the derivatives exchange or derivatives segment of an exchange, who may clear and settle transactions in securities.
Close-out-netting: An arrangement to settle all contracted but not yet due obligations to and claims on a counterparty by one single payment, immediately upon the occurrence of one of the defined events of default.
Closing Out: Where a party to a contract does not make 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 is borne by the defaulter.
Close-ended Fund: A type of investment company that has a fixed number of shares that are publicly traded. The price of a closed-end share fluctuates based on investor supply and demand. Closed-ended funds are not required to redeem shares and have managed portfolios. Closing Price The rate at which the last transaction in security is struck before the close of the trading hours.
Collar Agreement: Agreed upon adjustments in the number of shares offered in a stock-for-stock exchange to account for fluctuations in stock prices prior to the completion of the deal.
Collateral Assets: placed on deposit as security for an open position (e.g. loan, swap, short sale), which may be used to offset the potential loss by a counterparty should the first party default on its obligation.
Collateralised Debt Obligation (CDO): One of a series of bond-type investments, backed by a pool of assets, such as loans or mortgages, which can be tailored to match one or more investor’s requirements in terms of credit rating, risk, duration, the timing of payments, etc
Collateralized Mortgage Obligation (CMO): A generic term for security backed by real estate mortgages. CMO payment obligations are covered by interest and /or principal payments from a pool of mortgages. In addition to its generic meaning, CMO usually suggests a non-governmental issue.
Coattail Investing: Trading strategy in which investors duplicate the performance of a successful (and usually well-known) investor by copying his or her trades as soon as they are made public. This is a risky strategy, as there is a time delay between when the successful investor’s trades occur and when they are made public.
Collective Investment Management Company: A company incorporated under the provisions of the Companies Act, 1956 and registered with SEBI under the SEBI (Collective Investment Schemes) Regulations, 1999, whose object is to organize, operate, and manage a Collective Investment Scheme.
Collective investment scheme (CIS): Any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilized with a view to receiving profits, income, produce, or property, and is managed on behalf of the investors is a Collective Investment Scheme. Investors do not have day-to-day control over the management and operation of such scheme or arrangement.
Collar Hedge: Investment strategy obtained through a combination of put and call options. This option-based strategy results in stabilized portfolio returns by obtaining protection against a major decline in portfolio value in exchange for the sacrifice of part of the portfolio’s appreciation in a major rally.
Commercial Paper: A short-term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in form of a promissory note redeemable at par to the holder on maturity and therefore does not require any guarantee.
Common Stock: Units of ownership of a public corporation. Holders of common stock typically have voting rights and receive dividends, but there is no guarantee of dividend payment.
Competitive Bid: An offer made by a person other than the acquirer who has made the first public announcement.
Compound Interest: Method of accumulating interest, where interest is paid on both the initial investment and the interest accruing during the period.
Compound Rate of Return: Total return calculated by multiplying returns for different periods.
Compressed Valuations: Market conditions in which relative pricing differences between the highest- and lowest-priced segments of a stock market are smaller than the long-term average. Typically favors growth investors, since faster-growing stocks will be trading at a lower-than-normal premium to the market. Value investors, on the other hand, will struggle to find stocks trading at deep discounts to the market.
Composite Issues: An issue of securities by a listed company on a public-cum rights basis offered through a single offer document wherein the allotment for both public and rights components of the issue is proposed to be made simultaneously.
Compulsory Delisting: Permanent removal of securities of a listed company from a stock exchange as a penalizing measure at the behest of the stock exchange for not making submissions / complying with various requirements set out in the Listing agreement within the time frames prescribed.
Close-A-Position: Outright sale of a share and its delivery.
Commercial Banking: Commercial Banks perform the usual banking functions, serving both the general public and business people. Commercial banking consists in serving business people rather than private individuals.
Commodities Market: Market for trading bulk and basic goods like grain, edible oil, rubber, cotton, metals, etc.
Confirmation (TA): The comparison of two or more technical indicators. The purpose of the comparison is to ensure that they are pointing in the same direction and confirming each other.
Congestion Area (TA): A sideways trading range in which supply and demand balance out.
Confirmation Process: The procedure for verifying trade details with a counterparty. This is generally done by exchanging via fax or mail a document (i.e. a confirmation) identifying the trade details and any governing legal documentation and verifying the accuracy of the information provided by the counterparty (i.e. matching).
Consolidation Area (TA): A trading range in which prices move until continuing in the same direction as the trend that was present prior to the development of the consolidation area.
Constituent Subsidiary General Ledger (SGL) Account: A constituent SGL account is an account held by an intermediary at the Reserve Bank of India (RBI) on behalf of its constituents who have empowered the said intermediary to carry out various transactions on their behalf. In this account, only constituent transactions can take place and under no circumstances the intermediary will use this account for proprietary transactions.
Concentrated Portfolio: A portfolio with a small number of securities. This relative lack of diversification aims to achieve higher performance than the benchmark but with a commensurate increase in risk
Contango: In a forward contract, the situation where the price of a commodity for future delivery exceeds the spot price of the commodity. The difference is considered to indicate the cost of holding the physical asset for future delivery.
Continuous Disclosure: Procedure where certain companies are required to make disclosures on a continuing basis of their business activities by filing documents.
Continuous Net Settlement: Automated book-entry accounting system that centralizes the settlement of compared security transactions and maintains an orderly flow of security and money balances.
Contract Month: The month in which futures contracts may be settled by making or accepting delivery.
Contrary Opinion (TA): A belief that is opposite to the one held by the general public and Wall Street professionals. At major market turning points, the overall consensus regarding the future direction of security prices is usually wrong. Thus, an investor taking a contrary view can profit at those times.
Contract Note: A note issued by a broker to his constituent setting out the number of securities bought or sold in the market along with the rate, time, and date of the contract.
Control of Management: The right to appoint directly or indirectly or by virtue of agreements or in any other manner majority of directors on the Board of the target company or to control management or policy decisions affecting the target company.
Controlling Interest: Holding a sufficiently large number of shares in a company so as to be able to control its prices.
Convergence: Narrowing of the difference between the futures contract and the value of the underlying asset during the final days of the contract
Conversion Price: The price at which a convertible instrument is converted into shares of the company.
Conversion Ratio: The number of shares that may be acquired upon the conversion of a convertible instrument. The ratio is calculated as the instrument’s principal amount divided by the conversion price.
Convertible Bond: A bond gives the investor the option to convert the bond into equity at a fixed conversion price or as per a pre-determined pricing formula.
Contrarian: Investor who takes a position in the market contrary to that of the majority.
Conventional Bond: Bond where the coupon and principal payments are fixed.
Convertible Bond: Bond which, under certain conditions, the owner can opt to convert into another security, normally an ordinary share.
Correction: A situation in which prices move in the opposite direction of a major trend.
Corners: A corner occurs when a person buys up a substantial volume of a security knowing that other market participants will be forced to buy from him at a higher price. An example of this would be when the other market participants hold short positions in the security which must be settled. A similar practice is the “abusive squeeze” where a person takes advantage of a shortage in an asset by controlling the demand side and creating artificial prices.
Corporate Governance: The way in which companies run themselves, in particular the way in which they are accountable to those who have a vested interest in their performance, especially their shareholders.
Convexity: Measure the way a bond’s duration changes in response to a change in interest rates. Positive convexity is evidenced when the proportional change in a bond’s duration is greater than the proportional decrease in interest rates, and vice versa for the negative duration.
Core Holding: Security or asset which is considered to be a long-term holding in a portfolio and, as such, is less likely to be actively traded. They are often high-quality securities with a history of fairly steady performance.
Core/Satellite: Generally, the partitioning of a plan’s assets between a core portfolio of lower-risk holdings (which may be managed passively) and one or more actively managed (satellite) portfolios.
Corporate Bond: Bond issued by a corporation (as opposed to a government) promising regular payments on a specified date or range of dates and a final capital payment at redemption.
Corporate Social Responsibility: Initiative to assess and take responsibility for a company’s effects on the environment and impact on social welfare. This goes beyond the environmental measures required by law or by environmental protection groups.
Correlation Coefficient: Measure the interdependence of two or more variables, for example, the returns recorded by two stock markets. A correlation coefficient can range from -1 (inverse relationship) to +1 (perfect correlation — change in variables will be identical). A correlation coefficient of 0 indicates the absence of a relationship between the variables.
Corporate Raiders: A cash-rich person who may either by himself or through the company he controls buys in very large numbers of equity shares of a target company with a view to taking over that company.
Corporate Restructuring: Involves making radical changes in the composition of the businesses in the company’s portfolio.
Correction: Temporary reversal of trend in share prices. This could be a reaction (a decrease following a consistent rise in prices) or a rally (an increase following a consistent fall in prices).
Counter party Risk: The risk that between the time a transaction has been arranged and the time of actual settlement, the counterparty to the transaction will fail to make the appropriate payment.
Coupon: The interest paid on a bond is expressed as a percentage of the face value. If a bond carries a fixed coupon, the interest is paid on an annual or semi-annual basis. The term also describes the detachable certificate entitling the bearer to payment of the interest.
Coupon Rate: The interest rate is stated on the face of the coupon.
Cover: (1) To take out a forward foreign exchange contract. (2) To close out a short position by buying the currency or securities which have been sold. (3) To insure. (4) The purchase or sale of futures to offset a previously established short or long position.
Covered Call Option Writing: A strategy in which one sells call options while simultaneously owning an equivalent position in the underlying security.
Covered Put Option Writing: A strategy in which one sells puts and simultaneously is short of an equivalent position in the underlying security.
Covered Warrant: A stock, basket, or index warrant issued by a party other than the issuer of the underlying stock(s) and secured by the warrant issuer’s holding in the underlying securities or the warrant issuer’s general credit standing.
Credit Rating: Credit ratings measure a borrower’s creditworthiness and provide an international framework for comparing the credit quality of issuers and rated debt securities. Rating agencies allocate three kinds of ratings: issuer credit ratings, long-term debt, and short-term debt. Issuer credit ratings are amongst the most widely watched. They measure the creditworthiness of the borrower including its capacity and willingness to meet financial needs. The top credit rating issued by the main agencies - Standard & Poor’s, Moody’s, and Fitch IBCA - is AAA or Aaa. This is reserved for a few sovereign and corporate issuers. Ratings are divided into two broad groups - investment grade and speculative (junk) grade.
Credit Rating Agency: A credit rating agency means a body corporate that is engaged in, or proposes to be engaged in, the business of rating securities offered by way of public or rights issues.
Credit Risk: The risk that a counterparty will not settle an obligation for the full value, either when due or at any time thereafter. Credit risk includes pre-settlement risk (replacement cost risk) and settlement risk (Principal risk).
Cross collateralization: Practice of using assets as backup or secondary collateral for a debt other than the debt they are primarily pledged for. A network of cross-collateralization may facilitate an increase in borrowing or a reduction in borrowing cost.
Cross Hedging: Practice of altering the risk characteristic of a predetermined position in one cash good by taking out a position in a future or forward contract which is based on a good which differs significantly from that of the initial cash position.
Cross Margining: An arrangement between and among custodial and clearing organizations to partially offset excess risk-adjusted margin deposited with one entity against margin requirements with another.
Cross-Rate (U.S): The exchange rate between currencies A and C is derived from the rate between A and B and the rate between B and C. Thus if $ 1 = DM 2.50 and $1=Yen 250, the cross rate between the DM and Yen is DM 1= Yen 100.
Cum: Means ‘with’ A cum price includes the right to any declared dividend (cd) or bonus (cb).
Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.
Cumulative Preference Shares: A type of preference share on which dividend accumulates if not paid. All arrears of preference dividends have to be paid out before paying dividends on equity shares.
Country Allocation: Integral part of the asset allocation process that selects desired weightings in particular geographic regions.
Country Risk: Risk attached to investing in a given country that relates to the country, for example, political and economic risks rather than other factors more specific to the investment in question.
Coverage: Proportion of a portfolio’s benchmark that is actually held in the portfolio, measured either by market capitalization or the number of stocks. Also refers to the research of a particular stock by an analyst, who will issue reports and recommendations to fund managers.
Covered Option: Option where the writer owns the underlying asset (of a call option) or holds cash of equal value to the strike value of the underlying asset (for a call option).
Current Asset: Cash or an item of value expected to be converted into cash within one year or one operating cycle, whichever is longer.
Current Liability: Accounting term for money payable within the current accounting year, on account of trade creditors, taxation, dividends, etc. To these are often added provisions, i.e. any charges or liabilities (various government duties, disputed claims, etc.) that the company may have to settle within the accounting year.
Current Ratio: Current ratio measures a company’s current assets relative to its current liabilities. This gives an indication of its ability to meet short-term liabilities; the higher the ratio, the more liquid the company.
Current Yield: A measure of the return to a bondholder calculated as a ratio of the coupon to the market price. It is simply the annual coupon rate divided by the clean price of the bond.
Custodian: An organization, usually a bank or any other approved institution, that holds the securities and other assets of mutual funds and other institutional investors.
Custody Risk: The risk of loss of securities held in custody occasioned by the insolvency, negligence, or fraudulent action of the custodian or of a sub-custodian.
Contrarian shares: Shares that behave in a fashion contrary to the general stock market trend i.e., which fall when the market is rising and rise when the market is falling.
Cooking the book: Falsifying the financial accounts of a company to keep the shareholders happy and to attract investors with the lure of high profit.
CPI: Consumer price index.
Credit Rating: The need for ascertaining the creditworthiness of companies and financial institutions which approach the public for loan funds. Credit rating is not a buy or sell recommendation, but merely creating a risk awareness among the investors. The better companies are already using the rating symbols in their prospects for debt instruments although their use is not yet mandatory, as it is in the United States, where the rating of two agencies is required.
Credit: Debt issued by non-government bodies.
Credit Crunch: Describes the global financial crisis of 2008/early 2009 which was driven by a chronic lack of liquidity (credit) in financial markets across the world.
Credit Default Swap: Contract between two parties who agree to exchange payments based on a contingency residing with a third party. Typically, the protection buyer will make periodic payments to the protection seller, who in turn agrees to make a contingent payment to the buyer upon the occurrence of a credit event on the third party’s asset (e.g. the third party defaulting on a loan repayment).
Credit Risk: Risk of suffering loss due to another party defaulting on its financial obligations. Also known as default risk.
Credit Spread: Difference in the yield available on a corporate bond compared to a government bond. Credit spreads will generally be higher for companies with lower credit ratings.
Currency Hedging: Strategy designed to reduce or eliminate exchange rate risk in a portfolio of non-domestic assets through the use of currency futures/forwards or by the purchase, sale, or borrowing of the exposed currency.
Currency Risk: Risk of incurring losses in the value of overseas investments as a result of movements in international exchange rates. Can also refer to the additional volatility caused by exposure to assets in foreign currencies. Also known as exchange rate risk.
Currency Swap: Effectively the exchange of two sets of cash flows in different currencies. Involves the purchase/sale of a currency in the spot market against the simultaneous purchase/sale of the same amount of the currency in the forward market. The agreed payment in each currency changes hands on each swap date (unlike an interest rate swap, where the payments are netted off against each other).
Curve Risk: Risk that changes the shape and/or slope of the yield curve results in mismatched performance between an actual bond portfolio and its benchmark, or between assets and liabilities where these have different durations.
Currency options: An options contract giving the buyer the right to buy or sell a particular currency at a specified exchange rate within a certain period, basically a hedging instrument in covering risks against foreign exchange exposures by companies. Also called cross currency options, as the transaction involves two currencies, it is more advantageous than currency futures in that there is no definite commitment to buy or sell at a fixed price. If the exchange rate moves in favor of the buyer of the contract all that he has done is not to exercise the contract but buy or sell in the market.
Current Ratio: The ratio of current assets to current liabilities. If it is more than 1 the company’s operations are in a healthy state.
Cycle: A price pattern of movement that regularly occurs in a given time interval.
Cyclical Stock: Security which is sensitive to movements in the economic cycle — generally performs well in periods of falling interest rates or growth but poorly during an economic downturn. For example, financial stocks and capital goods.
Cyclical Trend: Recurring movements in prices or interest rates, usually linked to stages in the business cycle.Stock Market Reference (A-Z)