NCFM Capital Market (Dealers) flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

T+1 settlement

Indian equity trades settle one business day after trade date. NSE Clearing Ltd acts as central counterparty, and the Settlement Guarantee Fund covers default risk.

Price band

Daily price movement limit for a scrip. F&O stocks have a dynamic 10% band; non-F&O scrips carry fixed bands of 2%, 5%, 10% or 20%.

Circuit breaker

Market-wide halt triggered when Sensex or Nifty moves 10%, 15% or 20%. The duration of the halt depends on the time of day the trigger occurs.

Bulk deal

A single trade of at least 0.5% of a company's total listed shares on NSE. It must be reported and is distinct from the separate block deal window.

Stop-loss order

An order that becomes active only when a specified trigger price is touched. SL-L executes at a limit price; SL-M executes at market once triggered.

Insider trading regulation

SEBI (Prohibition of Insider Trading) Regulations, 2015 require trading window closure, a code of conduct and disclosure of holdings by promoters and key managerial personnel.

Free-float market cap

Market value of shares available for public trading, excluding promoter, government, strategic and locked-in holdings. It is the weighting basis for Nifty 50 and most NSE indices.

Index divisor

A number that converts total free-float market cap into an index level: Index = total free-float market cap / divisor. It is adjusted for corporate actions to avoid distortions.

Nifty 50 reconstitution

Semi-annual review in March and September that adds or removes constituents based on liquidity, float-adjusted market cap and trading frequency over the preceding six months.

Total return index

An index that reinvests dividends paid by constituents. It rises faster than the corresponding price index, and the gap approximates the dividend yield over time.

Impact cost

The cost of executing a standard basket relative to the ideal price. Lower impact cost indicates better liquidity and is a criterion for index inclusion.

Nifty Bank

A sectoral index of 12 bank stocks using the same free-float market-cap weighting methodology as Nifty 50 but restricted to the banking industry.

Futures fair value

Approximately Spot × [1 + (r − d) × T], where r is the risk-free rate, d the dividend yield and T time to expiry. Futures above fair value indicate contango.

Put-call parity

For European options, C − P = S − K × e^(−rT). A violation permits arbitrage through a conversion or reversal strategy using the underlying and a risk-free bond.

Option premium

The price paid for an option, equal to intrinsic value plus time value. Call intrinsic value is max(S − K, 0); put intrinsic value is max(K − S, 0).

Delta

The change in option premium for a one-unit change in the underlying spot price. Call deltas range from 0 to 1; put deltas range from −1 to 0.

Gamma

The rate of change of delta with respect to the underlying price. Gamma is highest for at-the-money options and rises as expiry approaches.

Theta

The change in option premium per day as time to expiry shortens. It is negative for long option positions and accelerates as expiry approaches.

Vega

The change in option premium for a one percentage point change in implied volatility. Long option positions have positive vega; short positions have negative vega.

Open interest

The number of outstanding derivative contracts. Rising OI with rising price suggests a long buildup; rising OI with falling price suggests a short buildup.

Index option settlement

NSE index options are European and cash-settled at expiry. Stock options are American and physically settled, requiring delivery of shares.

SPAN margin

A portfolio-based margin system that estimates worst-case loss over a one-day horizon across price and volatility scenarios. It is charged along with extreme loss margin.

USD/INR futures lot

The market lot on NSE is USD 1,000. The contract is quoted in rupees per USD and cash-settled against the RBI reference rate on the last trading day.

Currency futures tick

The minimum price movement is 0.25 paise (Rs 0.0025). For a USD/INR lot of USD 1,000, one tick is worth Rs 2.50.

Currency futures expiry

On NSE, currency futures expire on the last business day of the month. The near-month contract expires two working days before that last business day.

Currency option settlement

Options on USD/INR are European and cash-settled. The premium is quoted in rupees and is paid upfront by the option buyer.

FEMA exposure rule

Residents may take exchange-traded currency futures positions only against an underlying exposure, declared to the exchange. Positions beyond prescribed limits need approval.

Bond dirty price

The clean price plus accrued interest. Accrued interest equals coupon × days since the last coupon / days in the coupon period. Settlement uses the dirty price.

Modified duration

Macaulay duration divided by (1 + y/m). It estimates the percentage price change for a small change in yield: approximately −modified duration × Δy.

Convexity

The second-order sensitivity of bond price to yield. The price change estimate is −D_mod × Δy + 0.5 × convexity × (Δy)^2, and it matters more for large yield moves.

Treasury bill yield

T-bills are zero-coupon, issued at a discount and redeemed at face value. Implicit yield = (F − P)/P × 365 / days to maturity.

Credit rating scale

AAA denotes highest safety, followed by AA, A and BBB (investment grade down to BBB−). BB and below are speculative or non-investment grade.

G-sec settlement

Indian government securities settle T+1 on the RBI's Negotiated Dealing System–Order Matching platform. Corporate bonds typically settle T+1 or T+2 depending on the platform.