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Capital Market Terminologies

Capital Market

A capital market is a market for securities (debt or equity), where business enterprises

(companies) and governments can raise long-term funds. It is defined as a market in which

money is provided for periods longer than a year, as the raising of short-term funds takes place

on other markets (e.g., the money market). The capital market includes the stock market (equity

securities) and the bond market (debt). Capital markets may be classified as primary

markets and secondary markets. In the secondary markets, existing securities are sold and bought

among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.

(Ref. Wikipedia).

Money Market

The money market became a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. It

provides liquidity funding for the global financial system. The instruments bear differing

maturities, currencies, credit risks, and structure. Therefore they may be used to distribute the

exposure.

Distinguish between the money markets and capital markets:

The primary difference between the money and capital markets is maturity period of the

securities traded in them. The money market handles transactions within the short-term credit

instruments while the capital market handles transactions in long-term financial instruments.Typically, a maturity period above one year would be categorized long-term, and less than one

year would be categorized short-term.

Stock Exchange

The stock exchange provides a sound and stable securities market where shares can be bought

and sold. The stock exchange provides listed companies with a channel seek capital fund from

the public and at the same time it provides the investors a place to buy and sell shares of the

listed companies. The exchange also monitors the market to ensure that it is working efficiently,

fairly and transparently.

Investment Banker

An investment banker is a financial specialist involved as an intermediary in the merchandising

of securities. They facilitate the flow of savings from those economic units that want to invest to

those units that want to raise funds. The three main functions of an investment banker are

underwriting, distributing, and advising.

http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Equity_(finance)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Securities_exchangehttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Borrowhttp://en.wikipedia.org/wiki/Lendhttp://en.wikipedia.org/wiki/Buyhttp://en.wikipedia.org/wiki/Sellhttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Sellhttp://en.wikipedia.org/wiki/Buyhttp://en.wikipedia.org/wiki/Lendhttp://en.wikipedia.org/wiki/Borrowhttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Securities_exchangehttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Equity_(finance)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Market

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Share

Share capital (UK English) or capital stock (US English) refers to the portion of a

company's equity that has been obtained (or will be obtained) by trading stock to a shareholder.

Each share represents a small stake in the total paid up capital of a company.

Book closure / Record Date

While a company a dividend, right/ bonus shares or intends to hold any AGM/ EGM; it declares

a book legislature closer provider/ Record Date to register the name of shareholders. Only

shareholders whose names appear on the register after the book closure/ Record Date are eligible

to attend in the AGM/ EGM and also to receive dividends & bonus shares and entitlement to

right shares, if any.

What is IPO?

IPO refers to Initial Public offering. IPO means while a company wants to raise fund from the

general public, it goes for public offering after completing necessary regulatory compliances.

What is 'Circuit Filter?

Circuit Filter is the maximum permissible deviation of the price (specified as percentage), of an

aggressor order from the last trade price.

What is 'Market Lot?

A Market Lot is the smallest tradable unit for an instrument except those traded in the Odd lotbook. All order quantities can only be an integral multiple of the Market lot.

What is 'Odd Lot?

Stock market shares are generally bought and sold in market lots, which are easy to trade. Any

number of shares less than the market lot makes an odd lot. Odd lots typically arise from bonus

or rights issues.

What does TESA mean?

TESA (The Electronic Security Architecture) is The DSE trading system and is used to trade

Ordinary shares of listed companies, Mutual funds, Bonds and Debentures.

What is MSA?

http://en.wikipedia.org/wiki/Shareholders%27_equityhttp://en.wikipedia.org/wiki/Shareholders%27_equity

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MSA refers to Member Server Application. Brokers can use MSA to monitor and control their

trader(s). There can be only one MSA per broker house. All the traders (TWS) have to connect to

the trading system through MSA.

Who are ARs?

AR refers to Authorized Representative. ARs are certified trader for trading during the trade

execution time. They are appointed by the brokerage house and licensed by Securities and

Exchange Commission.

What is TWS (Trader Workstation)?

Traders (AR) can trade on the stock exchange using either TESA supplied workstation software

or through their own custom developed broker system. This kind of workstation is called TWS.

Mutual Fund

A Mutual Fund is a trust Fund established with the intention of investing a pool of savings in

various types of securities for the benefit of investors. Initially a mutual fund collects the funds

from small investors and then they are invested into the securities of different types, thus

diversifying the portfolio. Due to diversification of investment and professional management,

investing through mutual fund carries lesser risk then investing individually.

Open-Ended Mutual Fund

Open-ended mutual funds are those Funds where subscription and redemption of units are

allowed on a continuous basis. These schemes do not have a fixed maturity period. Investors canbuy or repurchase the units at any time at NAV /NAV based prices declared by the fund manager

on daily or weekly basis

Closed-End Mutual Fund

Closed-end mutual funds are those Funds where the shares are initially offered to the public and

are then traded in the secondary market.

Asset Management Company

AMC refers to that kind of company which undertakes the task of floating and managing theschemes delegated by the trustee. The company is usually considered professionally sound and

experts who are known for smart stock picks. AMC charges a fee for the services it renders to

the fund. The company acts as the investment manager of the fund under broad supervision and

direction of the trustees.

Key Players for launching a Mutual Fund

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Sponsor: The sponsor of the fund provides the primary capital for launching the fund. As aresult, the sponsor sets the policies and guidelines of the Mutual fund. The constitution of the

mutual fund is set on a trust deed and it is executed by the sponsor in favor of the trustee of the

fund (usually named in the trust deed). Sponsors of the fund can invest at least 10% or more. The

number of sponsors in any fund can be more than one.

Trustee:The trustee is considered to be the guardian of the fund and ensures compliance of SECand other rules and oversees the implementation of the trust deed. The Trustee also safeguards

the properties of the fund for all its stake holders.

Asset Manager:The asset management company makes the day-to-day investment decisions forthe Mutual Fund and is responsible for the performance of the fund. The function of the asset

manager also includes:

Activities relating to regulatory protection and reporting,

Preparation and distribution of prospectus, annual and periodic report of the Mutual Fund and

other papers for the investors

Accounting activities and preparation of tax return and Insurance and other services

Custodian:Custodians are financial institutions that keep the securities of the mutual fund in

safe custody. It also retains the following documentation for the clients:

Statement of receipt and distribution of Securities & money;

Detailed statement relating to the right of the clients on the Securities possessed on behalf of

the clients;

Detailed statement of registration of securities;

Ledger of Accounts for each Client and

Detailed statement of order received & given from the clients.