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Monday, October 1, 2007

SECURITIES CONCEPTS TO DIGEST

American Depository Receipts (ADR) (U.S.)

A certificate issued in the United States in lieu of a foreign security. The original securities are lodged in Bank/Custodian abroad, and the American Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock. An ADR dividend is paid in US dollars, so it provides a way for American investors to buy foreign securities without having to go abroad, and without having to switch in and out of foreign currencies.

Global Depository Receipts

Any instrument in the form of a depository receipt or certificate (by whatever name it is called) created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company.

Indian Depository Receipt

A receipt, evidencing an underlying foreign security, issued in India by a foreign company which has entered into an agreement with the issuer and depository, custodian and depository or underwriters and depository, in accordance with the terms of prospectus or letter of offer, as may be prescribed.

Bonus Shares

Shares issued by companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

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.

Participating Preference Shares

The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

Grey Knight

One who offers to buy shares of the bidding company as an aid to the defence.

White Knight (U.S.)

A friendly bidder, willing to offer more for a target share than an existing hostile bidder to rescue a company that is about to fall into the hands of an unwelcome suitor. They are usually persuaded by the company that is subject to a hostile bid to come to its rescue.

Insider

Any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access, connection, to unpublished price sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information

Insider trading

Practice of corporate agents buying or selling their corporation's securities without disclosing to the public significant information which is known to them but which has not yet affected the price.

Market capitalization

The market value of a company, calculated by multiplying the number of shares issued and outstanding by their current market price.

Merchant Banker

Any person who is engaged in the business of issue management either by making arrangement regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management.

Price sensitive information

Any information, which relates directly or indirectly to a company and which if published, is likely to materially affect the price of securities of the company.

Preferential allotment

Further issue of shares / securities convertible into equity shares at a later date, to a select group of persons in preference to all the existing shareholders of the company.

Tender Offer

Tender offer means an offer by a company to buy back its specified securities through a letter of offer from the holders of the specified securities of the company.

Stakeholder

Any individual or group who has an interest in a firm; in addition to shareholders and bondholders, includes labor, consumers, suppliers, the local community and so on.

Warrant

An options contract often sold with another security. For instance, corporate bonds may be sold with warrants to buy common stock of that corporation. Warrants are generally detachable.

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