CAPITAL MARKET

The market where investment instruments like bonds, equities and mortgages
are traded is known as the capital market. The primal role of this market is to
make investment from investors who have surplus funds to the ones who are
running a deficit.

Types of capital market There are two types of capital market:

Primary market, Secondary market
Primary Market It is that market in which shares, debentures and other
securities are sold for the first time for collecting long-term capital. This market
is concerned with new issues. Therefore, the primary market is also called NEW
ISSUE MARKET.

Secondary Market The secondary market is that market in which the buying
and selling of the previously issued securities is done. The transactions of the
secondary market are generally done through the medium of stock exchange.
The chief purpose of the secondary market is to create liquidity in securities.

Preference Shares 1. It offers a fixed rate of dividend. 2. Right to get capital on

winding up, before anything is paid to equity shareholders.

Equity or Ordinary Share 1. These shares have voting rights. 2. It doesnt offer a
fixed rate of return. 3. They are not entitled to get capital on winding up, before
paying to preference shareholders.

Difference between Share & stock

"stock" is a general term used to describe the ownership certificates of any
company, in general, and "shares" refers to a the ownership certificates of a
particular company. So, if investors say they own stocks, they are generally
referring to their overall ownership in one or more companies. Technically, if
someone says that they own shares - the question then becomes - shares in
what company?

Types of stocks
There are many different types of stocks available and in order to meet your
financial goals, its important that you understand the differences between them.
Blue Chip Stocks Blue chip stocks are well-established, nationally known, and
generally financially sound companies. Blue chip companies have consistently
demonstrated good earnings and industry leadership. Blue chips are typically
less volatile than other stocks and have a record of paying dividends in both good
and bad times.
4. Growth StocksGrowth-stock companies have earnings and market share
expansion that exceeds the industry average and the economy in general.
Growth stock companies typically reinvest their profits to expand and strengthen
their businesses, retaining most of their earnings to finance expansion and
paying little, if any, dividends to shareholders. Investors are attracted to these
stocks because they expect the stock price to go up as the company grows.

5. Penny Stocks The term penny stock generally refers to low-priced (below $5)
stock, which is traded over the counter (OTC). Penny stocks are generally
considered a very high-risk investment.
6. Value Stocks Value stocks are those that are considered undervalued by
value investors. Value investors typically define undervalued stocks by their
book/market and price/earnings ratios. Often value stocks represent companies
with past financial difficulties, whose potential for growth has been
underestimated, or that are part of an industry that is currently out of favor with
investors.

DEFINITION of 'Equity '

Equity is the value of an asset less the value of all liabilities on that asset.
example, if someone owns a car worth $15,000 but owes $5,000 on that car, the
car represents $10,000 equity
Equity = Assets Liabilities

NAV : ( NET ASSET VALUE)

Net asset value(NAV) is the value of a fund's asset less the value of its liabilities
per unit.
NAV = (Value of Assets-Value of Liabilities)/number of units outstanding

The Formula NAV = (Total market worth of all securities owned by the fund +
liquid cash and corresponding holdings - fund liabilities) total outstanding
shares of the fund.
Let's assume at the close of trading yesterday that a particular mutual fund held
$10,500,000 worth of securities, $2,000,000 of cash, and $500,000 of liabilities. If
the fund had 1,000,000 shares outstanding, then yesterday's NAV would be:
NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00

NAV is often associated with mutual funds, and helps an investor determine if the
fund is overvalued or undervalued. When we talk of open-end funds, NAV is
crucial. NAV gives the fund's value that an investor will be entitled to at the time
of withdrawal of investment. In case of a close-end fund, which is a mutual fund
with fixed number of units, price per unit is determined by market and is either
below or above the NAV.

Mutual Fund:
A mutual fund is a professionally managed investment fund that pools money
from many investors to purchase securities

There are two types of these products on the market.

Open-end funds are what you know as a mutual fund. They don't have a limit as
to how many shares they can issue. When an investor purchases shares in a
mutual fund, more shares are created, and when somebody sells his or her
shares the shares are taken out of circulation. If a large amount of shares are
sold (called aredemption), the fund may have to sell some of its investments in
order to pay the investor.
You can't watch an open-end fund like you watch your stocks, because they don't
trade on the open market. At the end of each trading day, the funds reprice based
on the amount of shares bought and sold. Their price is based on the total value
of the fund or the net asset value (NAV)
Closed-End Funds
Closed-end funds look similar but they're very different. A closed-end fund
functions much more like an exchange traded fund than a mutual fund. They are
launched through an IPO in order to raise money and then trade in the open
market just like a stock or an ETF. They only issue a set amount of shares and,
although their value is also based on the NAV, the actual price of the fund is
affected by supply and demand, allowing it to trade at prices above or below its
real value.

Advantages of Mutual Funds

Portfolio diversification: It enables him to hold a diversified investment portfolio
even with a small amount of investment like Rs. 2000/-.
Professional management: The investment management skills, along with the
needed research into available investment options, ensure a much better return
as compared to what an investor can manage on his own.

Reduction/Diversification of Risks: The potential losses are also shared with

other investors.
Reduction of transaction costs: The investor has the benefit of economies of
scale; the funds pay lesser costs because of larger volumes and it is passed on
to the investors
. Wide Choice to suit risk-return profile: Investors can chose the fund based on
their risk tolerance and expected returns

What are Derivatives?

A derivative is a financial instrument whose value is derived from the value of
another asset, which is known as the underlying
Example :The value of a gold futures contract is derived from thevalue of the
underlying asset i.e. Gold

Types of markets in derivatives:

Exchange-traded markets (stock exchange)
A derivatives exchange is a market where individuals trade standardized
contracts that have been defined by the exchange.

Over-the-counter markets (face to face)

Forwards: A forward contract is customized contracts between two entities were
settlement takes place on a specific date in the future at todays pre agreed price.

Futures: A future contract is an agreement between two parties to buy or sell an

asset at a certain time in the future at a certain price. Future contracts are
standardized exchange traded contracts.
Options: An option gives the holder of the option the right to do some thing. The
option holder option may exercise or not.
Call Option: A call option gives the holder the right but not the obligation to buy
an asset by a certain date for a certain price.
Put Option: A put option gives the holder the right but not obligation to sell an
asset by a certain date for a certain price.

Types of derivatives
Forward contracts
Forward contract is relatively a simple derivative. It is an agreement to buy or sell
an asset at a certain future time for a certain price.
A forward contract is traded in the over-the-counter marketusually between two
financial institutions or between a financial institution and one of its clients.
Forward contracts on foreign exchange are very popular, and can be used to
hedge foreign currency risk.

Futures contracts (Chicago Board of Trade (CBOT) Chicago Mercantile

Exchange (CME)

A futures contract is an agreement between two parties to buy or sell an asset at

a certain time in the future for a certain price.

Unlike forward contracts, futures contracts are normally traded on an exchange.

To make trading possible, the exchange specifies certain standardized features
of the contract.

Options are traded both on exchanges and in the over-the-counter market.

There are two types of option:
Call option gives the holder the right to buy the underlying asset by a certain
date for a certain price.
Put option gives the holder the right to sell the underlying asset by a certain
date for a certain price.
The price in the contract is known as the exercise price or strike price.
The date in the contract is known as the expiration date or maturity.
Options give the option holder the right, but not the obligation to buy or sell the
specified amount of the underlying asset (currency) at a pre-determined price
(exercise or strike price)
American options can be exercised at any time up to the expiration date.
European options can be exercised only on the expiration date itself.
Most of the options that are traded on exchanges are American.
DEFINITION of 'Swap'
A swap is a derivative contract through which two parties exchange financial
instruments. These instruments can be almost anything, but most swaps

involve cash flows based on a notional principal amount that both parties agree
to.

Three main types of traders can be identified:

hedgers, speculators, and arbitrageurs.
Hedgers are in the position where they face risk associated with the price of
an asset. They use derivatives to reduce or eliminate this risk.
Speculators wish to bet on future movements in the price of an asset. They
use derivatives to get extra leverage.
Arbitrageurs are in business to take advantage of a discrepancy between
prices in two different markets.

BOND EXCHANGE OFFER

2. INTRODUCTION An exchange offer is an offer made by corporation to retire
its securities from the market by exchanging the outstanding security for another
type of security. An exchange offer is made when a corporation decides to
change its capital structure. It may need to eliminate costly, obsolete, or
restrictive features offered with the outstanding security issue.
3. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action, if it is
mandatory or Non-voluntary event or book on Expiration date if it is Voluntary
event. Calculate the new shares to be purchased by multiplying Client response
to share ratio if it is voluntary event. Calculate the new shares to be purchased
by multiplying prior to Ex date holdings to share ratio if it is Non-voluntary event.

We book Sell trade on parent cusip & buy trade on the entitle child cusip in both
type of events.
4. CUSTODY TREATMENT Custody will also book Sell on parent cusip & Buy
Trade onto the resultant Cusip according to corporate action share ratio.
Custody would book a separate sell & buy trades for shares which are On-Loan &
for those which are Off Loan.
5. SAMPLE OF BOND EXCHANGE OFFER Details of Corporate Action: Exp
Date: 03/04/2008 Record Date: Payable Date: Ratio: 1 unrestricted security
for existing one restricted security Fund: RNNB Client Response: 480000
6. IMPORTANT NOTES In US Bond exchange offers, holding of the parent
security moved to the contra cusip ( Temp CUSIP)after response received from
client. But we do not post any trades for such movements unless holding from
contra cusip not moved to child cusip.
7. BONUS ISSUE
8. INTRODUCTION A Corporation issues extra shares of a Security to its
Shareholders at NO COST. Bonus Shares are those shares issued by a
company to its existing Shareholders at ZERO COST or FREE. It means that
the Shareholders are benefitted by some additional shares without paying for it.
9. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying your Ex-date holding by
ratio given. We book a BUY Trade on system or there is an Auto SPDIV, in both
the cases the Shares are bought at ZERO COST.
10. CUSTODY TREATMENT Custody will also book a Buy Trade onto the
resultant Cusip as provided on BCAR which can be Same Parent Cusip or New
Cusip. Custody would book a separate buy trade for shares which are On-Loan
& for those which are Off Loan.

11. SAMPLE OF BONUS ISSUE Details of Corporate Action: Ex Date:

12/03/2008 Record Date:11/03/2008 Payable Date: 16/03/2008 Ratio: 3 New
shares for Existing 10 shares Fund: ABCD Holding (Prior to Ex Date): 14259
12. CONVERSION
13. INTRODUCTION A conversion is an offer made by corporation to convertible
bondholders & convertible preferred stockholders to convert their securities to
common stock of the company. Corporations issue convertible securities to offer
investor flexibility. The conversion will usually takes place when the common
stock has greater value than the convertible bond or preferred stock.
14. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action, if it is
mandatory or Non-voluntary event or book on Expiration date if it is Voluntary
event. Calculate the new shares to be purchased by multiplying client response
to share ratio updated, if it is voluntary event. Calculate the new shares to be
purchased by multiplying prior to Ex date holdings to share ratio updated, if it is
Non-voluntary event. We book Sell trade on parent cusip & buy trade on the
entitle child cusip in both type of events.
15. CUSTODY TREATMENT Custody will also book Sell on parent cusip & Buy
Trade onto the resultant Cusip provided according to corporate action share ratio.
Custody would book a separate sell & buy trades for shares which are On-Loan &
for those which are Off Loan.
16. SAMPLE OF CONVERSION Details of Corporate Action: Exp Date:
31/12/2007 Record Date: Payable Date: Ratio: 0.7244352 GBP shares for
Each EURO share Fund: ABCD Client Response: 49059 shares
17. DIVIDEND REINVESTMENT PLAN
18. INTRODUCTION A Dividend Reinvestment Plan offers shareholders choice
of reinvesting a cash dividend distribution to purchase additional shares of the
company. Offering stockholders the option of reinvesting dividends is an

attractive investment strategy for most investors. For corporation it gives Cash
flow & tax benefits.
19. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying Client response to net
cash dividend receivable divided by reinvestment price plus commission & stamp
duty; if applicable. We book a BUY Trade on amount which is equal to entitled
shares into reinvestment price plus commission & stamp duty if applicable.
20. CUSTODY TREATMENT Custody will also book a Buy Trade onto the
resultant Cusip provided. Custody would book a separate buy trade for shares
which are On-Loan & for those which are Off Loan.
21. SAMPLE OF DIVIDEND REINVESTMENT PLAN Details of Corporate Action:
Ex Date: 06/02/2008 Record Date:08/02/2008 Payable Date: 05/03/2008
Ratio: Reinvestment price GBP 2.00675 Net Cash dividend Rate GBP 0.0135
Fund: ABCD BCAF Response: 123181
22. STOCK CASH OPTION Stock Cash option is also similar to Dividend
reinvestment Plan & both these actions have same treatment except Stock Cash
option will be booked on expiration date while dividend reinvestment plan will be
booked on ExDate. Sometimes instead of Reinvestment Price there is stock
ratio updated in Stock Cash option corporate action. In such cases, we calculate
the entitlement by multiplying stock ratio by the response given.
23. SAMPLE OF STOCK CASH OPTION Details of Corporate Action: Ex Date:
18/01/2008 Record Date:31/12/2007 Payable Date: 31/01/2008 Ratio:
0.064841126 new shares per each responded share Fund: ABCD Response:
8287
24. IMPORTANT NOTES In this stock cash option, cash option gets prorated.
Shareholders will not receive cash dividend @ USD 2.51 but will receive cash
dividend @ USD 0.808113 & 0.043965048 share per each responded share
because of proration. We will calculate the entitlement by multiplying client
response to share ratio updated & buy these shares @ amount which is equal to

client response multiplied by USD 1.701887 i.e. ( USD 2.51- USD 0.808113)
dividend to be capitalized.
25. FULL / PARTIAL CALL
26. INTRODUCTION A Corporation issues Bond with provision that it may have
the right to redeem or Call full or partial redemption of the bond issue before its
maturity date. A corporation issues callable bonds because it provides control
over an outstanding security. If the interest rates decline to the point that it
becomes too costly to have an issue outstanding, the issuer can invoke the call
provision. This enables the issuer to refinance the debt by selling the bond at a
lower interest rate. In Full Call entire holding of the shareholders get redeemed
while in Partial Call only some percentage of the bond issue get redeemed.
27. ACCOUNTING TREATMENT FOR FULL CALL Book on Ex Date of the
Corporate Action. Calculate the call amount by multiplying redemption rate
updated to original face position or current position. We book Sell trade on
accounting, selling entire position against call amount.
28. CUSTODY TREATMENT FOR FULL CALL Custody will also sell the entire
bond position against call amount. Custody will book the sell trade against
original buy (Original Face) trade. But if it is Sinking Bond you will find accounting
trade has been booked against the current position which is valid.
29. SAMPLE OF FULL CALL Details of Corporate Action: Ex Date: 15/04/2008
Blocking Date:14/04/2008 Payable Date: 15/04/2008 Redemption Rate: EUR
0.251385312 Original Face: 100000 Current Position: 25138.61
30. IMPORTANT NOTES In US Tenders, we wait for custody cash movement.
Custody will transfer holding from parent to contra cusip & there will be cash
movement against contra cusip. But on accounting we will book sell trade only on
parent cusip against cash received on the custody.
31. LIQUIDATION

32. INTRODUCTION Liquidation means winding-up or dismantling of the

business. Assets of a company are sold, debts paid to creditors( in order of
priority) & remaining proceeds distributed to the shareholders. An unprofitable
company will go through various stages in an attempt to reverse its problems. But
if they can not be resolved it will ultimately go into liquidation.
33. ACCOUNTING TREATMENT We process Liquidation on custody movement
only. We will mirror trade booked on custody on to the accounting, taking same
trade date & pay date as used in trade booked on custody.
34. CUSTODY TREATMENT Custody will also book Sell on parent cusip & Buy
Trade onto the resultant Cusip provided according to corporate action share ratio.
Custody would book a separate sell & buy trades for shares which are On-Loan &
for those which are Off Loan.
35. MERGER
36. INTRODUCTION It is action taken by corporations to merge two or more
corporations to form an independent legal entity. A merger usually takes place
as result of one corporation having product or services that other corporation
needs or used. A merged corporation may also be able to increase financial
leverage & service opportunities.
37. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. If it
is cash merger, we will sell parent Cusip at the cash rate given. If it is securities
merger, we will sell parent Cusip at full cost & by the entitlement Cusip updated at
the same cost.
38. CUSTODY TREATMENT Custody will sell parent Cusip at the cash rate as
provided, if it is cash merger. If it is securities merger, custody will sell parent
Cusip & buy the entitlement Cusip as updated. Custody would book a separate
trades for shares which are On-Loan & for those which are Off Loan.

39. SAMPLE OF MERGER Details of Corporate Action: Ex Date: 03/03/2008

Record Date:28/02/2008 Payable Date: 17/03/2008 Ratio: GBP 1.9306 per
each share. Holding (Prior to Ex Date): 394536
40. SCREENSHOT OF CUSTODY SIDE (BTDA SCREEN) On Custody side you
wont be able to find any trade on Ex - date, as the same would appear on
custody side around payable date (which is 17/03/2008) for Off Loan Shares.
Incase of those which are On Loan it would be received within a period of 90
Days from Payable Date.
41. IMPORTANT NOTES Sometimes in voluntary cash mergers proration factor
is applied. In such cases, for un-prorated response client may get security. In
such case we sell the parent Cusip with full cost using cash broker & buy the
entitlement Cusip @ reduced cost i.e. full cost minus cash receivables.
42. Return of capital & Special Dividend
43. Definition A return from an investment that is not considered income. The
Return of Capital is when some or all of the money an investor has in an
investment is paid back to him or her, thus decreasing the value of the
investment. This is not a gain of any type because it is not in excess of the
original investment. A Special dividend is a payment made by a company to its
shareholders that is separate from the typical recurring dividend cycle, if any, for
the company. The difference may be the result of the date of issue, the amount,
the type of payment, or a combination of these factors.
44. Reason for Return of Capital Surplus Cash Reserves Optimization of
Capital Structure Restructuring Financial ratios Sale of Non-Core Business
Assets
45. Methods of Return of Capital Special Dividend Share Buyback Capital
Restructuring Reason for Special Dividend Strong Company Earnings
Confidence among Investor Labeling the dividend as Special Dividend

46. Benefits to Company Optimum utilization of Capital (ROC) Sign of

Sustainability Cost effectiveness Attracting new investors Benefits to
Shareholders Special Payment other than Normal Dividend Tax Benefits (ROC)
Pay Back to Investor (ROC)
47. Effects on Accounting & Custody In case of Return of Capital, on accounting
we pass a negative POAJ to reduce book cost of the security invested On
custody, cash will be received on system. In case of Special Divs, if needed to
treat it as Capital we pass a negative POAJ or if needed to treated it as Income,
income line will be set up and would be received as per receipt on the custody
side
48. Example Security holding: 1000 shares Dividend of amount GBP2.00
Negative POAJ of GBP2000.00 to be passed in order to reduce the book cost of
the security (if treated as capital) Income line will be set up for GBP2000.00 on
the ex date and would be received on pay date (if treated as income)
49. REVERSE STOCK SPLIT
50. INTRODUCTION It is an action taken by a corporation to decrease the
number of outstanding shares at predetermined ratio. A shareholders
proportion of ownership remains the same even though the number of shares
decrease & price per share increases. Corporation may elect to exercise a
reverse split to increase trading activity.
51. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying your Ex-date holding by
ratio given. We book sell & buy trade. We sell the parent Cusip at the cost & buy
the entitlement Cusip at the ratio at the same cost.
52. CUSTODY TREATMENT Custody will book sell & buy trade. Custody will sell
parent Cusip & book buy trade onto the entitlement Cusip as provided on BCAR.
Custody would book a separate sell & buy trade for shares which are On-Loan &
for those which are Off Loan.

53. Sample of Reverse Stock Split Issue Details of Corporate Action: Ex Date:
22/023/2008 Record Date:21/02/2008 Payable Date: 22/02/2008 Ratio: 67
new shares for 74 existing shares Holding (Prior to Ex Date): 273198
54. IMPORTANT NOTES Sometimes there is return of capital action with reverse
stock split. In such cases, we sell the parent Cusip at the full cost & buy the
entitlement at reduced cost i.e. parent cost minus cash entitlement.
55. RIGHTS ISSUE
56. INTRODUCTION A stock right is a privilege granted to the existing
shareholders of a corporation to subscribe new issue of common stock before it
is offered to the public, & to maintain their percentage of ownership in the
corporation. A company may issue rights to raise additional capital for a specific
venture. A company issues rights at the discounted (Subscription) price.
57. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying your Ex-date holding by
ratio given. We book a BUY Trade. Shares are bought at ZERO COST if price of
the rights is less than 15 % of price of the parent. If price of the rights is more
than 15 % of parents price then we will do the cost allocation between parent &
rights according to percentage updated.
58. CUSTODY TREATMENT Custody will also book a Buy Trade onto the
resultant Cusip as provided. Custody would book a separate buy trade for
shares which are On-Loan & for those which are Off Loan.
59. SAMPLE OF RIGHTS ISSUE Details of Corporate Action: Ex Date:
15/01/2008 Record Date:10/01/2008 Payable Date: 15/01/2008 Ratio: 2
Rights for existing 9 Ordinary shares Holding (Prior to Ex Date): 42000
60. RIGHTS ISSUE - EXERCISE After rights issue, action follows is Exercise
rights which is voluntary action where client have following four options. Option1
-: Exercise rights & purchase new shares at exercise price. Option2 -: Request
Sub custodian/ broker to sell the rights in the market. Option3 -: Request Bank

to sell the rights in the market on their behalf. Option4 -: Allowing rights to be
lapsed.
61. ACCOUNTING TREATMENT Book on expiration date. If client opted for
exercise we will sell right Cusip & buy the new Cusip. If client opted for sale of
rights then we would wait for sell of rights on custody & mirror the custody trade.
If client opted for lapse, we would give same treatment as rights sold.
62. CUSTODY TREATMENT If client opts for exercise custody will also sell
parent Cusip & buy the new Cusip. If client opts for sale of rights, custody will
sell rights before expiration date. If client opts for lapse, custody will book sell
trade for lapsing rights after expiration date.
63. SAMPLE OF RIGHTS EXERCISE Details of Corporate Action: Exp Date:
06/02/2008 Debit Date: 06/02/2008 Payable Date: Ratio: 1 new share for 1
Right Response: 9733
64. NEW TO ORDINARY(PARI-PASSU ) This is non voluntary action where new
shares will rank Pari-Passu. This action will only take place when client
receives new shares in exercise corporate action which are not tradable at
exchange. So by this action shareholders will receive shares which are tradable
on exchange.
65. ACCOUNTING TREATMENT Book on EX date of the corporate action. We
will sell new shares at cost & buy the ordinary line at the same cost. CUSTODY
TREATMENT Book on EX date of the corporate action. Custody will also sell
new shares & buy the ordinary line at.
66. SAMPLE OF NEW TO ORDINARY CORP ACT. Details of Corporate Action:
Exp Date: 07/02/2008 Payable Date: 07/02/2008 Ratio: 1 Ordinary Share for 1
New Share Holding (Prior to Ex Date): 9333
67. SPIN-OFF

68. INTRODUCTION It is an action taken by a corporation to separates a portion

of its operations or subsidiary company to create an independent company A
spin off usually takes place when a corporation decides not to contribute
additional capital to a subsidiary. It then separates that subsidiary to be a
freestanding legal entity.
69. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying your Ex-date holding by
ratio given. We book buy trade on entitlement Cusip & book Sell & buy trade on
parent Cusip to give effect of cost allocation. We sell the parent Cusip at the 100
%cost & buy the same at reduced percentage of the cost given while buy the
entitlement Cusip at the ratio at the percentage of cost updated.
70. CUSTODY TREATMENT Custody will only book buy trade on entitlement
Cusip. Custody would book separate buy trades for shares which are On-Loan
& for those which are Off Loan.
71. Sample of Spin-Off Issue Details of Corporate Action: Ex Date: 04/03/2008
Record Date: 03/03/2008 Payable Date: 03/03/2008 Ratio: 4 shares of new
company for existing one share Holding (Prior to Ex Date): 12800 Local Cost :
1263465.59 USD Base Cost : 1263465.59 USD
72. IMPORTANT NOTES Cost allocation effect would be given on accounting
only as Custody never consider the cost. So there will be no corresponding sell &
buy trade booked on to the parent Cusip on custody side as it is booked on
accounting to give effect of cost allocation.
73. STOCK DIVIDEND
74. INTRODUCTION A Stock Dividend is a Distribution of Profits (in the form of
Stock) i.e. declared by Corporations Board of Directors to its Shareholders This
is where you will receive extra shares in Security instead of Cash Dividend
75. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying your Ex-date holding by

ratio given on the BCAR. The Ratio is found on the second screen of the BCAR.
We book a BUY Trade on MCH (using REDB) or there is an Auto SPDIV, in both
the cases the Shares are bought at ZERO COST. CUSTODY TREATMENT
Custody will also book a Buy Trade onto the resultant Cusip as provided on
BCAR which can be Same Parent Cusip or New Cusip. Custody would book a
separate buy trade for shares which are On-Loan & for those which are Off
Loan.
76. SAMPLE OF STOCK DIVIDEND Details of Corporate Action: Ex Date:
16/01/2008 Record Date:18/01/2008 Payable Date: 08/02/2008 Ratio: 0.05
for 1 per Share Holding (Prior to Ex Date): 1260 Shares IMPORTANT NOTES
In US stock dividend, F10 screen or second screen of BCAR never gets updated
& you will find the ratio on F6 screen or first screen of BCAR. In Taiwan stock
dividend, With holding tax get debited from Clients account which we do not
process.
77. STOCK SPLIT
78. INTRODUCTION A stock split is an action taken by a corporation to increase
the number of outstanding shares and decrease the market price. When the
shares are distributed to stockholders, current price per share will decrease
proportionate to the increase in shares. Also, the shareholders proportion of
ownership remains unchanged.
79. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action.
Calculate the new shares to be purchased by multiplying your Ex-date holding by
ratio given. We book a BUY Trade or there is an Auto SPDIV, in both the cases
the Shares are bought at ZERO COST. If the entitle Cusip is different than
parent Cusip, we will book Sell & Buy trade. We will sell parent Cusip at the full
cost & buy the new Cusip according to share ratio @ the same cost.
80. CUSTODY TREATMENT Custody will also book a Buy Trade onto the
resultant Cusip according to ratio provided, Resultant Cusip is same Parent
Cusip. If the entitlement is different than parent Cusip, Custody will sell parent
Cusip & buy the new Cusip according to share ratio. Custody would book a

separate buy & sell trades for shares which are On-Loan & for those which are
Off Loan.
81. SAMPLE OF STOCK SPLIT ISSUE Details of Corporate Action: Ex Date:
03/03/2008 Record Date:29/02/2008 Payable Date: 03/03/2008 Ratio: 10:1
Fund: XB1Y Holding (Prior to Ex Date): 141 We do not process cash receives
for fraction shares resulted out of stock split.

Personal account:
Personal account relates to persons with whom a business keeps dealings. A
person called be a natural person or a legal person. If a person receives anything
from the business, he is called receiver and his account is to debited in the books
of the business. If person gives anything to business, he is called as a giver and
his account is to be credited in the books of the business.
The Golden Rule for Personal Account is,Debit the Receiver and Credit the Giver
Example: Goods worth 1000 bucks sold to Mr. Smith from Mr. John. In this
transaction, Mr. Smith is the receiver of goods, he is called receiver and his
account is to be debited in the books of business. Mr. John is the giver of goods,
he is called giver and his account is to be credited in the books of business.

Real account:
Real account relates to property which may either come into the business or go
from business. If any property or goods comes into the business, account of that

property or goods is to be debited in the books of the business. If any property or

goods goes out from the business account of that property or goods is to be
credited in the books of business.
The Golden Rule for Real Account is,Debit what comes in and Credit What Goes
out

3. NOMINAL ACCOUNT
Nominal account is an account that relates to business expenses, loss, income
and gains. If business incurs expense to manage and run business, account of
that expense is to be debited in the books of business. When a business earns
income by rendering services or hiring business assets, an account of that
income is too credited in the books of business.
On other hand, if in the case the transaction of sale or purchase of goods or
assets, if any loss is incurred by the business, account of that loss is to debited in
the books or assets. If in the transaction of sale or purchase of goods or assets
any profit is earned by the business, then account of that profit is to be credited in
the books of business.
The Golden Rule for Nominal Account is, Debit all Expenses or Loss and Credit
all Income Gains or Profit

What is a 'Balance Sheet'

A balance sheet is a financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time. These three balance
sheet segments give investors an idea as to what the company owns and owes,
as well as the amount invested by shareholders.
The balance sheet adheres to the following formula:
Assets = Liabilities + Shareholders' Equity

Difference between Accounting & Finance:

Accounting:
It is an art of recording and reporting of the monetary transactions of a
business.
Accounting is a part of finance.
Tool s used in accounting: Income Statement, Balance Sheet, Cash flow
Statement etc.
Aim of accounting is to see how the company is performing, to monitor day
to day accounting operations, and for taxing.

Finance:
Finance is the science of management of funds of a business
Finance is not a part of accounting.
To study the capital market and funds of business for making future
strategies.
Risk Analysis, Capital Budgeting, Ratio Analysis, Leverage, Working
Capital Management etc.

Difference between bonds & debentures.

All debentures are bonds, but not all bonds are debentures. Whenever a bond is
unsecured, it can be referred to as a debenture. Debentures have a more specific
purpose than bonds. Both can be used to raise capital, but debentures are
typically issued to raise short-term capital for upcoming expenses or to pay for
expansions.

Initial Public Offering (IPO): Its is the first sale of stock by a private company to
the public. IPOs are often issued by smaller, younger companies seeking capital
to expand, but can also be done by large privately-owned companies looking to
become publicly traded

Accrued Income : Accrued Income means income which has been earned by the
business during the accounting year but which has not yet become due and,
therefore, has not been received.

Earning per Equity share (EPS): It shows the amount of earnings attributable to
each equity share.
Formula :

profits available for Equity shareholders

--------------------------------------------------Number of Equity shares

Working capital : The funds available for conducting day to day operations of an
enterprise. Also

represented by the excess of current assets over current

liabilities.
What is CRR (Cash Reserve Ratio)?
It is the ratio of Deposits which banks have to keep with RBI. Under CRR a
certain percentage of the total bank deposits has to be kept in the current
account with RBI. Banks dont earn anything on that.
Banks will not have access to this amount. They cannot use this money for any of
their economic or commercial activities. Banks cant lend this portion of money to
corporate or individual borrowers

What is Statutory Liquidity Ratio (SLR)?

Besides CRR, Banks have to invest certain percentage of their deposits in
specified financial securities like Central Government or State Government
securities. This percentage is known as SLR.
This money is predominantly invested in government securities which mean the
banks can earn some amount as interest on these investments as against CRR
where they do not earn anything.

What is Repo Rate?

When we need money, we take loans from banks. And banks charge certain
interest rate on these loans. This is called as cost of credit (the rate at which we
borrow the money).
Similarly, when banks need money they approach RBI. The rate at which banks
borrow money from the RBI by selling their surplus government securities to the
central bank (RBI) is known as Repo Rate. Repo rate is short form of
Repurchase Rate. Generally, these loans are for short durations (up to 2 weeks).
It simply means the rate at which RBI lends money to commercial banks against
the pledge of government securities whenever the banks are in need of funds to
meet their day-to-day obligations.
Banks enter into an agreement with the RBI to repurchase the same pledged
government securities at a future date at a pre-determined price. RBI manages
this repo rate which is the cost of credit for the bank.
Example If repo rate is 5% , and bank takes loan of Rs 1000 from RBI , they will
pay interest of Rs 50 to RBI.
What is Reverse Repo Rate?
Reverse repo rate is the rate of interest offered by RBI, when banks deposit their
surplus funds with the RBI for short periods. When banks have surplus funds but
have no lending (or) investment options, they deposit such funds with RBI. Banks
earn interest on such funds.
Current CRR, SLR, Repo and Reverse Repo Rates:
The current rates are (as of last week of October 2014) CRR is 4 % , SLR is
22%, Repo Rate is 8% and Reverse Repo Rate is 7%.

TRADE LIFE CYCLE:

Tarde= exchange of stock for cash

Trade life cycle refers to set of activities that takes place after trade is entered.
It includes:
Trade execution & capture
Trade Enrichment & validation
Trade Agreement & reporting
Trade Settlement
Ongoing process & Trade Management

1. Trade execution & capture:

It refers to executing the order placed by client and capturing the
details of trade in system.
Trade details include trade date time settlement date price security
etc.

2. Trade Enrichment & validation

Enrichment refers to adding additional details to trade so that trade can be settled
correctly.
Addition details include custody details settlement instructions, total cash value of
trade includes fees & commission.
Validation refers to checking basic details such as trade date must be business
day.

Tarde date is the date on which trade is placed or executed.

Value date is the date on which trade is expected to be settled.

Trade Agreement & reporting

Trade Settlement
Trade Settlement refers to actual exchange of cash or securities between
parties involved.
Settlement is usually done through designated third parties
Ongoing process & Trade Management
It includes :
Funding & financing: arranging funds support trade activies

Reconciling ensuring the recoed details internallty & externally match

Corporate actions- means adjusting the open positions based on dividends
mergers right issue.

Investment Banking:
An investment bank raises money by selling securities to companies and to
the government. They also provide advice to corporations about mergers and
buyouts
Investment banking is all dealing in IPOs, shares, and mutual funds
A financial intermediary that performs a variety of services. Investment banks
specialize in large and complex financial transactions such as underwriting,
acting as an intermediary between a securities issuer and the investing public,
facilitating mergers and other corporate reorganizations, and acting as a
broker and/or financial adviser for institutional clients.
It is concerned with the primary function of assisting the capital market in its
function of capital intermediation.
Investment banks are institutions that are counter part of capital market .
Investments bankers help companies, governments, and their agencies to
raise money by issuing and selling securities in the primary market.
It provides 2 secives :
Primary & secondary;

Primary:
RAISING CAPITAL
MERGERS & ACQUISITIONS
GENERAL ADVISORY SERVICES

Secondary
SECURITIES BUSINESS
ASSEST MANAGEMENT SERVICES
INVESTMENT ADVISORY OR WEALTH MANAGEMENT

Mortgage back securities:

A mortgage-backed security (MBS) is a type of asset-backed security that is
secured by a mortgage or collection of mortgages. The mortgages are sold to a
group of individuals (a government agency or investment bank) that securitizes, or
packages, the loans together into a security that investors can buy.

DIGITAL OR BINARY OPTION:

In finance, a binary option is a type of option where the payoff is either

some fixed amount of some asset or nothing at all. The two main types of
binary options are the cash-or-nothing binary option and the asset-ornothing binary option. The cash-or-nothing binary option pays some fixed
amount of cash if the option expires in-the-money while the asset-ornothing pays the value of the underlying security.

Thus, the options are binary in nature because there are only two possible
outcomes. They are also called all-or-nothing options, digital options (more
common in forex/interest rate markets), and Fixed Return Options (FROs)
(on the American Stock Exchange). Binary options are usually Europeanstyle options.

For example, a purchase is made of a binary cash-or-nothing call option on

XYZ Corp's stock struck at $100 with a binary payoff of $1000. Then, if at
the future maturity date, the stock is trading at or above $100, $1000 is
received. If its stock is trading below $100, nothing is received.

For eg:
In case of binary option of apple if the current market price is 100rs n u predict
it will go 150 rs and enter into binary option n if the apple price reaches 150rs
you will be iN the money and will get your own money plus the intrest
And if it doesnt rechese 150 u will lose your money even it is near by 150.