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The Capital Market
is probably the most relevant market category to the individual
investor. Every moment, a miniscule change here has great effects on the
net worth of every investor. Find out in this section, what the terms
all mean.
Alert
Some actions of the dealers need control approval. These actions come
to control workstation as Alerts. The possible alerts that require
control approvals are trade modification, trade cancellation, negotiated
trade entry, auction initiation and auction order cancellation.
All or None (AON)
This is one of the Special Terms conditions. An order with this
condition should be matched either with the entire order quantity or
none at all.
At The Opening (ATO) Order
Market order entered during the Pre-Open period. These orders are
priced according to the calculation of the opening price during the
Pre-Open period.
Auction Market
The buy/sell auction for a Capital Market security is managed through
the auction market. As opposed to the Normal market where trade matching
is an on-going process, the trade matching process for auction starts
after the auct
Base Price
The price of a security at the beginning of the trading day which is
used to determine the Day Minimum/Maximum and the Operational ranges for
that day.
Batch
A period in the trading day for the different markets. Order entry,
matching, inquiries and other functions at the workstation are not
allowed during this period. The system maintains files and trading
parameters and downloads the reports of the trading members during this
period and makes the system available for next day.
Branch Order Value Limit
A limit placed on the daily aggregate value of orders entered by
dealers or the Branch Manager. Orders entered by dealers or the Branch
Manager with value exceeding the Order Value Limit for the branch are
not allowed by the system.
Broadcast Circuit
This is a virtual circuit through which the system can send messages to
all workstations. In this mode, the system does not await the response
from the workstations.
Buyer
The trading member who has placed the order for the purchase of the
securities.
Closing Price
The trade price of a security at the end of a trading day. Based on the
closing price of the security, the base price at the beginning of the
next trading day is calculated.
Competitor
The auction participant on the same side of the Initiator's order. If
the Initiator is a buyer then the competitor enters buy orders for the
same security.
Control User
An employee of the exchange who is a user of the Capital Market system
having special control privileges. The control user can alter the master
files, trading parameters and also perform market monitoring and control
operations.
Counterparty
When a trading member enters an order, any other trading member with an
order on the opposite side is referred to as the counterparty.
Day Minimum/Maximum Range
The minimum/maximum price range for a security on a trading day. Buy
orders outside the Maximum of the range and sell orders outside the
Minimum of the range are not allowed to be entered into the system. It
is calculated as a percentage of the Base price.
Day Orders
If any quantity of a Day order is left untraded, the order is not
cancelled by the system until the end of the trading day.
Dealer
A user belonging to a Trading Member. Dealers can participate in the
market on behalf of the Trading Member.
Derivatives
Derivatives, such as options or futures, are financial contracts which
derive their value off their "underlying" asset. For examples,
wheat farmers may wish to contract to sell their harvest at a future
date to eliminate the risk of a change in prices by that date. Such a
transactionwould take place through a forward or futures market.
This market is the "derivative market", and the prices on
this market would be driven by the spot market price of wheat which is
the "underlying". The terms "contracts" or "products"
are often applied to denote the traded instrument.
The world over, derivatives are a key part of the financial system. The
most important contract types are futures and options, and the most
important underlying markets are equity, treasury bills, commodities,
foreign exchange and real estate.
Disclosed Quantity (DQ)
A dealer can enter such an order in the system wherein only a fraction
of the order quantity is disclosed to the market. If an order has an
undisclosed quantity, then it trades in quantities of the disclosed
quantity.
Forward Markets
Forward markets worldwide are afflicted by several problems: lack of
centralisation of trading, illiquidity and counterparty risk. In the
first two, the problem is that of too much flexibility and generality.
The forward market is like the real estate market in that any two
consenting adults can form contracts against each other. This often
makes them design terms of the deal, which are very convenient in that
specific situation, but makes the contracts non-tradable. Also, the "phone
market" here is unlike the centralization of price discovery that
is obtained on an exchange.
Counterparty risk in forward markets is a simple idea — when one
of two sides of the transaction chooses to declare bankruptcy, the other
suffers. Forward markets have one basic property — the larger the
time period over which the contract is open, the larger are the
potential price movements, and hence the larger is the counterparty
risk.
Even when forward markets trade standardized contacts, and avoid the
problem of illiquidity; the counterparty risk remains a real problem. A
classic example of this was the famous future on the tin forward market
at LME.
Forward contract
In a forward contract, two parties agree to do a trade at a future
date, at a stated price and quantity. No money changes hands at the time
the deal is signed.
Forward contracting is valuable in hedging and speculation. The classic
hedging application would be that of a wheat farmer forward-selling his
harvest at a known price in order to eliminate price risk.
Conversely, a bread factory may want to buy bread forward in order to
assist production planning without the risk of price fluctuations. If a
speculator has information or analysis, which forecasts an upturn in
price, then she can go long on the forward market instead of the cash
market.
A speculator would go long on the forward, wait for the price to rise
and then reverse a transaction. The use of forward markets here supplies
leverage to the speculator.
Freeze
Orders entered into the system with price outside the Operational range
and orders with quantity greater than the Order Quantity Freeze
percentage is sent to the Exchange for approval. Such orders are not
reflected in the books and are 'frozen' till the Exchange approves them.
Futures contract
Futures markets were designed to solve all the three problems (listed
in Q 4) of forward markets. Futures markets are like the forward markets
in terms of basic economics.
However, contracts are standardized and trading is centralized, so that
futures markets are highly liquid. There is no counterparty risk (thanks
to a clearinghouse, which becomes counterparty to both sides of each
transaction and guarantees the trade).
In futures markets, unlike in forward markets, increasing the time to
expiration does not increase the counterparty risk.
Good Till Cancelled (GTC) orders
If any quantity of a GTC order is left untraded, the order is not
cancelled by the system until it is cancelled by the dealer or after a
parameterized number of days.
Good Till Date (GTD) orders
If any quantity of a GTD order is left untraded, the order is not
cancelled by the system until the Good Till Date mentioned in the order.
Immediate or Cancel (IOC)
When a IOC order is entered, the system will immediately try to match
this order as much as possible and cancel the remaining quantity, if any
at all. In this attempt, the order might find a partial match.
Initiator
The trading member who starts the auction. The Initiator can be a buyer
or a seller.
Interactive Circuit
This is a virtual circuit through which the system can send messages to
a specific workstation and vice - versa.
Limit order
Is an order for which the price (limit price) has been specified at the
time of making the order entry.
Market order
Is an order for which no price has been specified at order entry.
Matching
When a buy and a sell order satisfy the price - time priority, they can
result in a trade. This process is called as matching. The match can be
full or partial depending on the order conditions.
Minimum Fill (MF)
This is one of the special conditions where a minimum quantity is
specified for an order. The quantity of the trade involving an order
with a MF attribute should at least be this minimum quantity specified.
Negotiated Trade
Two Trading members can negotiate a trade outside the system. However
this trade is accepted by the system only if Control approves. Both the
parties enter each side of their trade in the system specifying each
other's identity.
Normal Market
The orders entered in the system for normal trade matching depends
primarily on a price/time priority. These orders can be Regular Lot,
Special Terms, Stop Loss orders or Negotiated Trade entries. Each order
must be equal to or be a multiple of the regular lot for that security.
Odd Lot Markets
The market in which odd lot orders are recorded. Odd Lot orders have a
quantity less than one regular lot.
Open
A time period in the trading day for the different markets that the
exchange deals in. Order entry, matching, inquiries and other functions
at the workstation will be allowed during this period.
Operational range
The price range for a security on a trading day such that buy orders
outside the Maximum of the range and sell orders outside the Minimum of
the range causes a price freeze and be sent to the Exchange for
approval. It is calculated as a percentage of the Base price.
Order
A buy or a sell offer/bid for any of the Capital Market securities
entered by the dealer in the system. The system generates a unique order
number for each order entry.
Order Quantity Freeze percentage
A percentage of the outstanding quantity of a security is ascertained.
An order with quantity exceeding this percentage causes a freeze and is
sent to the Exchange for approval.
Participant
An entity responsible for the settlement of a trade is deemed to be a
participant. Every order in the trading system has a participant
associated with it.
Pre-Open
A time period in the trading day for the Normal market. Trading members
are allowed to enter orders during this period. These orders in the
system take part in the algorithm for the calculation of the opening
price during this period.
Print/Report Circuit
This is a virtual circuit through which the system can download report
data to all workstations. In this mode, the system does not await the
response from the workstations.
Regular Lot
The minimum quantity of an order entered into the Normal, Spot and
Auction markets. The order that does not carry any special conditions
(Minimum Fill, All or None) is treated as a regular lot order.
Security
A Security is a valid and unique combination of Symbol and Series.
Securities are traded in the Capital Market. Shares and Debentures are
some examples of securities.
Seller
The trading member who has placed the order for selling the security.
Solicitor
The auction participant who is on the opposite side of the Initiator's
order. If the Initiator is a buyer then the solicitor will enter sell
orders for the same security.
Special Terms
The dealer can place an order that carries special conditions and
restrictions regarding the way the order value can be matched. These
terms are called Special Terms. The typical special terms are Minimum
Fill and All or None.
Spot market
Orders that have spot settlement are entered into the Spot market.
Stop Loss
The dealer can enter a regular lot or a special term order with a
'trigger' price. Such orders are called Stop Loss orders. The stop loss
orders are not taken for matching unless the trigger price is either
reached or if it is surpassed by the last traded price for the security.
Once the market price reaches or surpasses the trigger price, the 'stop
loss' attribute is removed and the order is taken up for regular
matching process.
Surcon
A time period in the trading day for different markets. Order entry and
matching is not allowed. Only inquiries, requests for trade
modifications and cancellations are allowed during this period.
Trade
When a buy order matches with a sell order following the price - time
priority logic, a trade takes place. The system generates a unique trade
number for each trade.
Trader Workstation
A dealer can participate in the Capital Market only from the trader
workstation, where the trading functions are available.
Trading Member
A member of the NSE who is authorized to place orders in the Capital
Market System. The term Broker or Brokerage house is also used to convey
the same meaning.
Turnover Limit
This indicates the aggregate trade value limit on a daily basis set for
a trading member. The Exchange sets the limit for each trading member of
the Capital Market. The trade value for both buy and sell for a day are
accumulated and the total is checked against this upper limit after
every potential trade match.
User
A person is recognized as a user of the Capital Market system, when he
or she possess a valid user identifier and password, both of which are
essential requirements for accessing the system.
Warning Quantity Percentage
A percentage that reflects the quantity outstanding on a certain
security. An order with quantity exceeding this percentage causes the
system to force the dealer to confirm the entered order.
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