Tuesday, December 27, 2011
Sunday, December 18, 2011
Saturday, December 17, 2011
Wednesday, December 14, 2011
Sunday, December 11, 2011
UN-OFFICIAL DATE SHEET B.COM KARACHI UNIVERSITY EXAMS 2011
Wednesday, November 30, 2011
Monday, November 28, 2011
Motivation in theory - Herzberg two factor theory
Herzberg's Two Factor Theory is a "content theory" of motivation" (the other main one is Maslow's Hierarchy of Needs).
Herzberg analysed the job attitudes of 200 accountants and engineers who were asked to recall when they had felt positive or negative at work and the reasons why.
From this research, Herzberg suggested a two-step approach to understanding employee motivation and satisfaction:
Hygiene Factors
Hygiene factors are based on the need to for a business to avoid unpleasantness at work. If these factors are considered inadequate by employees, then they can cause dissatisfaction with work. Hygiene factors include:
- Company policy and administration
- Wages, salaries and other financial remuneration
- Quality of supervision
- Quality of inter-personal relations
- Working conditions
- Feelings of job security
Motivator Factors
Motivator factors are based on an individual's need for personal growth. When they exist, motivator factors actively create job satisfaction. If they are effective, then they can motivate an individual to achieve above-average performance and effort. Motivator factors include:
- Status
- Opportunity for advancement
- Gaining recognition
- Responsibility
- Challenging / stimulating work
- Sense of personal achievement & personal growth in a job
There is some similarity between Herzberg's and Maslow's models. They both suggest that needs have to be satisfied for the employee to be motivated. However, Herzberg argues that only the higher levels of the Maslow Hierarchy (e.g. self-actualisation, esteem needs) act as a motivator. The remaining needs can only cause dissatisfaction if not addressed.
Applying Hertzberg's model to de-motivated workers
What might the evidence of de-motivated employees be in a business?
- Low productivity
- Poor production or service quality
- Strikes / industrial disputes / breakdowns in employee communication and relationships
- Complaints about pay and working conditions
According to Herzberg, management should focus on rearranging work so that motivator factors can take effect. He suggested three ways in which this could be done:
Tuesday, November 22, 2011
Saturday, November 19, 2011
Wednesday, November 16, 2011
Tuesday, November 15, 2011
Friday, November 11, 2011
Agriculture Problems in Pakistan And Their Solutions
Economy of every state depends on three sectors i.e agriculture, industry and commerce. These three are interrelated with each other as the progress or retrogress of one sector effects the other two. Pakistan is an agricultural state thus agriculture gains are of much importance than any other sector. Importance of this sector is manifold as it feeds people, provides raw material for industry and is a base for foreign trade. Foreign exchange earned from merchandise exports is 45% of total exports of Pakistan. It contributes 26% of GDP and 52% of the total populace is getting its livelihood from it. 67.5% people are living in the rural areas of Pakistan and are directly involved in it.
There are two crops in Pakistan ie Rabi & Kharif. Crop | Sowing season | Harvesting season Kharif | April – June | Oct – Dec Rabi | Oct – Dec | April – May Major crops of Pakistan are wheat, rice, maize, cotton and sugar cane. These major crops contributed 7.7% last year against the set target of 4.5%. Minor crops are canola, onions, mangoes and pulses which contributed 3.6% as there was no virus attack last year. Fishery and Forestry contributes 16.6% and 8.8% respectively. Though the agricultural sector is facing problems in Pakistan yet the major chunk of money comes from this sector. Following are the major causes of agricultural problems in Pakistan which disturb the agricultural growth or development in Pakistan.
Firstly,No mechanism has been adopted to eradicate the soil erosion and even after harvesting nothing is done to improve or restore the soil energy. Therefore, the fertility of soil is decreasing day by day. The thickness of fertile layer of soil in Pakistan is more than 6 inches but the average yield is lower than other countries where layer of fertile soil is only 4 inches.
Secondly, water wastage is very high in our country. The archaic method of flood irrigation is still in practice in whole of the country which wastes almost 50 to 60 percent of water. A new irrigation system called drip irrigation system has been introduced in many parts of the world. This not only saves water but also gives proper quantity of water according to the needs of plants.
Thirdly, owing old methods of cultivation and harvesting, Pakistan has low yield per acre that means the average crop in Pakistan is just 1/4th of that of advance states. Where as Nepal, India and Bangladesh are using modern scientific methods to increase their yield per acre. For this purpose, these states are using modern machines to improve their yield.
Fourthly, the small farmers are increasing in our country as the lands are dividing generation by generation. So, there are large number of farmers who own only 4 acres of land. These small farmers do not get credit facilities to purchase seeds, pesticides, fertilizers etc. Additionally, a large area of land is owned by feudals and the farmers who work on their lands, are just tenants. This uncertain situation of occupancy neither creates incentive of work nor does attract capital investment.
Fifthly,water logging and salinity is increasing day by day. No effective measures have been taken to curb it. As the storage capacity of the dams is decreasing so the water availability per acre is also decreasing. Therefore, the farmers are installing more and more tube wells to irrigate their crops. This is why salinity is becoming the major issue in most parts of Punjab and Sindh.
Sixthly,focusing more on land, crops and yield problems the man behind the plough is always ignored. While formulating the 5 or 10 years plan, no emphasize has been laid on the importance of solving the problems of farmers. Most of the farmers are illiterate, poor and ignorant. In this wake the loans issued by ADBP or other banks are used by them in other fields like repayment of debts, marriage of daughters etc, in spite of its befitting use in agricultural sector.
Lastly, The only mean of communication in rural areas is T.V or radio so it is urgently needed on the part of these mass communication resources to air the programmes related to the new agricultural techniques and allied sciences. But these programmes should be telecast in regional or local languages. Because lack of guidance is the main reason of farmers backwardness. The communication gap between well qualified experts and simple farmers have not been bridged. Availability of these experts is not ensured in rural areas as they are reluctant to go there.
Solutions For Agricultural Problems
In Pakistan: Feudalism should be abolished and lands should be allotted to poor farmers. This will enhance the productivity and per acre yield of all the crops in Pakistan. Taxes should be levied on Agricultural income but not without devising limit of land holding. Other wise it would directly effect poor farmers. Federal Seed Certification and Federal Seed Registration is approved but it should taken responsible steps in approving seeds as it has already approved 36 new kinds of seeds. Specially, those seeds should be banned which can create pest problem in near future. These seeds are of cotton mainly. International seed makers are providing those seeds which are not successful in our country as these seeds are not tested on our soil. A new Agricultural policy must be framed in which following steps should be focussed on. - Small farmer must be focused. The major problems of small farmers should be solved first. - Consumer friendly policy must be projected. - Productivity enhancement programme must be constituted to adjust and support prices. - Different Agricultural zones should be introduced. As Multan in famous for its Mangoes and citrus fruits so it must be made Mango, citrus zone by which Perishable products should be exported. This would enhance agro based industry and increase foreign reserves. Pakistan Agricultural storage & Services Corporation needs to take steps in this regard. - Corporate farming like giving lands to Mitehels, Nestle and Multinational companies is also a good idea that will also help those who own a large area of fertile land but can’t manage it. - Surplus vegetables and fruits must be exported. A Rs 39 million scheme has been approved for the current fiscal year for establishment of agro export processing zone for fruits, vegetables and flowers. This will also help in commercializing agriculture - Latest mechinery should be provided to the farmers to increase the per acre yield. This provision should be on easy installments so that the farmers can avoid the burden of loans. If possible subsidy should be given by the government of modern machinery.- Modern techniques of irrigation can solve the problems of irrigation in Pakistan. This includes drip irrigation and sprinkle irrigation methods. By using this technique the farmers can save a huge some of money which he pays for irrigation through tubewells and tracktors. - More dams should be constructed on Indus, Jehlum and Chenab rivers. This will enhance the storage capacity of water and reduce the per acre cost of all the crops. This step will also reduce the salinity chances of the lands as less tubewell water will be flooded to the lands which cause salinity.
There are two crops in Pakistan ie Rabi & Kharif. Crop | Sowing season | Harvesting season Kharif | April – June | Oct – Dec Rabi | Oct – Dec | April – May Major crops of Pakistan are wheat, rice, maize, cotton and sugar cane. These major crops contributed 7.7% last year against the set target of 4.5%. Minor crops are canola, onions, mangoes and pulses which contributed 3.6% as there was no virus attack last year. Fishery and Forestry contributes 16.6% and 8.8% respectively. Though the agricultural sector is facing problems in Pakistan yet the major chunk of money comes from this sector. Following are the major causes of agricultural problems in Pakistan which disturb the agricultural growth or development in Pakistan.
Firstly,No mechanism has been adopted to eradicate the soil erosion and even after harvesting nothing is done to improve or restore the soil energy. Therefore, the fertility of soil is decreasing day by day. The thickness of fertile layer of soil in Pakistan is more than 6 inches but the average yield is lower than other countries where layer of fertile soil is only 4 inches.
Secondly, water wastage is very high in our country. The archaic method of flood irrigation is still in practice in whole of the country which wastes almost 50 to 60 percent of water. A new irrigation system called drip irrigation system has been introduced in many parts of the world. This not only saves water but also gives proper quantity of water according to the needs of plants.
Thirdly, owing old methods of cultivation and harvesting, Pakistan has low yield per acre that means the average crop in Pakistan is just 1/4th of that of advance states. Where as Nepal, India and Bangladesh are using modern scientific methods to increase their yield per acre. For this purpose, these states are using modern machines to improve their yield.
Fourthly, the small farmers are increasing in our country as the lands are dividing generation by generation. So, there are large number of farmers who own only 4 acres of land. These small farmers do not get credit facilities to purchase seeds, pesticides, fertilizers etc. Additionally, a large area of land is owned by feudals and the farmers who work on their lands, are just tenants. This uncertain situation of occupancy neither creates incentive of work nor does attract capital investment.
Fifthly,water logging and salinity is increasing day by day. No effective measures have been taken to curb it. As the storage capacity of the dams is decreasing so the water availability per acre is also decreasing. Therefore, the farmers are installing more and more tube wells to irrigate their crops. This is why salinity is becoming the major issue in most parts of Punjab and Sindh.
Sixthly,focusing more on land, crops and yield problems the man behind the plough is always ignored. While formulating the 5 or 10 years plan, no emphasize has been laid on the importance of solving the problems of farmers. Most of the farmers are illiterate, poor and ignorant. In this wake the loans issued by ADBP or other banks are used by them in other fields like repayment of debts, marriage of daughters etc, in spite of its befitting use in agricultural sector.
Lastly, The only mean of communication in rural areas is T.V or radio so it is urgently needed on the part of these mass communication resources to air the programmes related to the new agricultural techniques and allied sciences. But these programmes should be telecast in regional or local languages. Because lack of guidance is the main reason of farmers backwardness. The communication gap between well qualified experts and simple farmers have not been bridged. Availability of these experts is not ensured in rural areas as they are reluctant to go there.
Solutions For Agricultural Problems
In Pakistan: Feudalism should be abolished and lands should be allotted to poor farmers. This will enhance the productivity and per acre yield of all the crops in Pakistan. Taxes should be levied on Agricultural income but not without devising limit of land holding. Other wise it would directly effect poor farmers. Federal Seed Certification and Federal Seed Registration is approved but it should taken responsible steps in approving seeds as it has already approved 36 new kinds of seeds. Specially, those seeds should be banned which can create pest problem in near future. These seeds are of cotton mainly. International seed makers are providing those seeds which are not successful in our country as these seeds are not tested on our soil. A new Agricultural policy must be framed in which following steps should be focussed on. - Small farmer must be focused. The major problems of small farmers should be solved first. - Consumer friendly policy must be projected. - Productivity enhancement programme must be constituted to adjust and support prices. - Different Agricultural zones should be introduced. As Multan in famous for its Mangoes and citrus fruits so it must be made Mango, citrus zone by which Perishable products should be exported. This would enhance agro based industry and increase foreign reserves. Pakistan Agricultural storage & Services Corporation needs to take steps in this regard. - Corporate farming like giving lands to Mitehels, Nestle and Multinational companies is also a good idea that will also help those who own a large area of fertile land but can’t manage it. - Surplus vegetables and fruits must be exported. A Rs 39 million scheme has been approved for the current fiscal year for establishment of agro export processing zone for fruits, vegetables and flowers. This will also help in commercializing agriculture - Latest mechinery should be provided to the farmers to increase the per acre yield. This provision should be on easy installments so that the farmers can avoid the burden of loans. If possible subsidy should be given by the government of modern machinery.- Modern techniques of irrigation can solve the problems of irrigation in Pakistan. This includes drip irrigation and sprinkle irrigation methods. By using this technique the farmers can save a huge some of money which he pays for irrigation through tubewells and tracktors. - More dams should be constructed on Indus, Jehlum and Chenab rivers. This will enhance the storage capacity of water and reduce the per acre cost of all the crops. This step will also reduce the salinity chances of the lands as less tubewell water will be flooded to the lands which cause salinity.
Wednesday, October 26, 2011
NEW REGISTRATION DATES FOR B.COM EXTERNAL EXAMS 2011
NEW REGISTRATION DATES FOR B.COM EXTERNAL EXAMS 2011
CRASH CLASSES B.COM 1 & 2
ACCOUNTING, STATISTICS, ECONOMICS AND ADVANCED & COST ACCOUNTING IN JUST 30 CLASSES.
CRASH CLASSES B.COM 1 & 2
ACCOUNTING, STATISTICS, ECONOMICS AND ADVANCED & COST ACCOUNTING IN JUST 30 CLASSES.
Tuesday, October 18, 2011
Sunday, October 16, 2011
Wednesday, October 12, 2011
Tuesday, October 11, 2011
CRASH CLASSES B.COM 1 & 2
CRASH CLASSES B.COM 1 & 2
IN ONLY 30 DAYS
ALL IMPORTANT SUBJECTS.
CONTACT NOW
KHALID AZIZ
0322-3385752
IN ONLY 30 DAYS
ALL IMPORTANT SUBJECTS.
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KHALID AZIZ
0322-3385752
Friday, October 7, 2011
Sunday, October 2, 2011
GUESS PAPERS AVAILABLE FOR B.COM & B.A
GUESS PAPERS AVAILABLE FOR B.COM & B.A
KHALID AZIZ
0322-3385752
KARACHI.
KHALID AZIZ
0322-3385752
KARACHI.
Tuesday, September 27, 2011
Wednesday, September 7, 2011
BUSINESS LAW: PROVISIONS REGARDING HEALTH & SAFETY
Health and Safety
13. Cleanliness. -
(1) Every factory shall be kept clean and free from effluvia arising from any drain, privy or other nuisance, and in particular, -
(a) accumulation of dirt and refuse shall be removed daily by sweeping or by any other effective method from the floors and benches of work-rooms and from staircases and disposed of in a suitable manner ;
(b) the floor of every work-room shall be cleaned at least once in every week by washing, using disinfectant where necessary or by some other effective method ;
(c) where the floor is liable to become wet in the course of any manufacturing process to such extent as is capable of being drained, effective means of drainage shall be provided and maintained ;
(d) all inside walls and partitions, all ceilings, or tops of rooms and walls, sides and tops or passages and staircases shall -
(i) where they are painted or varnished, be repainted or revarnished at least once in every five years ;
(ii) where they arc painted or varnished and have smooth impervious surfaces, be cleaned at least once in every fourteen months, by such methods as may be prescribed ;
(iii) in any other case, kept whitewashed or colour washed and the whitewashing or colour washing shall be carried out at least once in every fourteen months ; and
(e) the dates on which the processes required by clause (d) are carried out shall be entered in the prescribed register.
(2) If, in view of the nature of the operations carried on in a factory it is not possible for the occupier to comply with all or any of the provisions of sub-section (1), the Provincial Government may, by an order, exempt such factory or class or description of factories from any of the provisions of that sub-section and specify alternative methods for keeping the factory in a clean state.
14. Disposal of wastes and effluents. -
(1) Effective arrangements shall be made in every factory for the disposal of wastes and effluents due to the manufacturing process carried on therein.
(2) The Provincial Government may make rules prescribing the arrangements to be made under sub-section (1) or requiring that the arrangements made in accordance with that sub-section shall be subject to the approval of such authority as may be prescribed.
15. Ventilation and temperature. -
(1) Effective and suitable provisions shall be made in every factory for securing and maintaining in every work-room -
(a) adequate ventilation by the circulation of fresh air, and
(b) such temperature as will secure to workers therein reasonable conditions of comfort and prevent injury to health, and in particular -
(i) the walls and roofs shall be of such material and so designed that such temperature shall not be exceeded but kept as low as practicable ;
(ii) where the nature of the work carried on in the factory involves, or is likely to involve, the production of excessively high temperature, such adequate measures as are practicable shall be taken to protect the workers therefrom by separating the process which produces such temperature from the work-room by insulating the hot parts or by other effective means.
(2) The Provincial Government may prescribe a standard of adequate ventilation and reasonable temperature for any factory or class or description of factories or parts thereof and direct that a thermometer shall be provided and maintained in such place and position as may be specified.
(3) If it appears to the Provincial Government that in any factory or class or description of factories excessively high temperature can be reduced by such methods as whitewashing, spraying or insulating and screening outside walls or roofs or windows, or by raising the level of the roof, or by insulating the roof either by an air space and double roof or by the use of insulating roof materials, or by other methods, it may prescribe such of these or other methods to be adopted in the factory.
16. Dust and fume. -
(1) In every factory in which, by reason of the manufacturing process carried on, there is given off any dust or fume or other impurity of such a nature and to such an extent as is likely to be injurious or offensive to the workers employed therein, effective measures shall be taken to prevent its accumulation in any work-room and its inhalation by workers and if any exhaust appliance is necessary for this purpose, it shall be applied as near as possible to the point of origin of the dust, fume or other impurity, and such point shall be enclosed so far as possible.
(2) In any factory no stationary internal combustion engine shall be operated unless the exhaust is conducted into open air and exhaust pipes are insulated to prevent scalding and radiation heat, and no internal combustion engine shall be operated in any room unless effective measures have been taken to prevent such accumulation of fumes therefrom as are likely to be injurious to the workers employed in the work-room.
17. Artificial humidification. -
(1) The Provincial Government may, in respect of all factories in which humidity of the air is artificially increased, make rules -
(a) prescribing standards of humidification ;
(b) regulating the methods used for artificially increasing the humidity of the air ;
(c) directing prescribed tests for determining the humidity of the air to be correctly carried out and recorded, and
(d) prescribing methods to be adopted for securing adequate ventilation and cooling of the air in the work-rooms.
(2) In any factory in which the humidity of the air is artificially increased, the water used for the purpose shall be taken from a public supply, or other source of drinking water, or shall be effectively purified before it is so used.
(3) If it appears to an Inspector that the water used in a factory for increasing humidity which is required to be effectively purified under sub-section (2) is not effectively purified, he may serve on the Manager of the factory an order in writing specifying the measures which, in his opinion, should be adopted, and requiring them to be carried out before a specified date.
18. Overcrowding. -
(1) No work-room in any factory shall be over-crowded to an extent injurious to the health of the workers employed therein.
(2) Without prejudice to the generality of the provisions of sub-section (1) there shall be provided for every worker employed in a work-room -
(a) at least three hundred and fifty cubic feet of space in the case of a factory in existence on the date of the commencement1 of the Labour Laws (Amendment) Ordinance, 1972; and
(b) at least five hundred cubic feet of space in the case of a factory built after the commencement of the Labour Laws (Amendment) Ordinance, 1972.
Explanation. - For the purpose of this sub-section no account shall be taken of a space which is more than fourteen feet above the level of the floor of the room.
(3) If the Chief Inspector by order in writing so requires, there shall be posted in each work-room of a factory a notice specifying the maximum number of workers who may in compliance with the provisions of this section be employed in the room.
(4) The Chief Inspector may, by order in writing, exempt, subject to such conditions as he may think fit to impose, any work-room from the provisions of this section if he is satisfied that compliance therewith in respect of such room is not necessary for the purpose of health of the workers employed therein.
19. Lighting. -
(1) In every part of a factory where workers are working or passing, there shall be provided and maintained -
(a) sufficient and suitable lighting, natural or artificial, or both; and
(b) emergency lighting of special points in work-room and passages to function automatically in case of a failure of the ordinary electric system.
(2) In every factory all glazed windows and sky-lights used for the lighting of the work-room shall be kept clean on both the outer and inner surfaces and free from obstruction as far as possible under the rules framed under sub-section (3) of section 15.
(3) In every factory effective provisions shall, so far as is practicable, be made for the prevention of -
(a) glare either directly from any source of light or by reflection from a smooth or polished surface; and
(b) the formation of shadows to such an extent as to cause eye strain or risk of accident to any worker.
(4) The Provincial Government may prescribe standards of sufficient and suitable lighting for factories or for any class or description of factories or for any manufacturing process.
20. Drinking Water. -
(1) In every factory effective arrangements shall be made to provide and maintain at suitable points conveniently situated for all workers employed therein a sufficient supply of whole-some drinking water.
(2) All such points shall be legibly marked "Drinking Water" in a language understood by the majority of the workers and no such point shall be situated within twenty feet of any washing place, urinal or latrine, unless a shorter distance is approved in writing by the Chief Inspector.
(3) In every factory wherein more than two hundred and fifty workers are ordinarily employed, provision shall be made for cooling the drinking water during the hot weather by effective means and for distribution thereof and arrangements shall also be made for -
(a) the daily renewal of water if not laid on; and
(b) a sufficient number of cups or other drinking vessels, unless the water is being delivered in an upward jet.
(4) The Provincial Government may, in respect of all factories or any class or description of factories, make rules for securing compliance with the provisions of this section.
21. Latrines and urinals. -
(1) In every factory -
(a) sufficient latrines and urinals of prescribed types shall be provided conveniently situated and accessible to workers at all times while they are in the factory;
(b) enclosed latrines and urinals shall be provided separately for male and female workers;
(c) such latrines and urinals shall be adequately lighted and ventilated and no latrine and urinal shall, unless specially exempted in writing by the Chief Inspector, communicate with any workroom except through an intervening open space or ventilated passage;
(d) all such latrines and urinals shall be maintained in a clean and sanitary condition at all times with suitable detergents or disinfectants or with both;
(e) the floors and internal walls of the latrines and urinals and the sanitary blocks shall, up to a height of three feet, be finished to provide a smooth polished impervious surface; and
(f) washing facilities shall be provided near every sanitary convenience.
(2) The Provincial Government may prescribe the number of latrines and urinals to be provided in any factory in proportion to the number of male and female workers ordinarily employed therein and such further matters in respect of sanitation in the factories as it may deem fit.
22. Spittoons. -
(1) In every factory there shall be provided, at convenient places, a sufficient number of spittoons which shall be maintained in a clean and hygienic condition.
(2) The Provincial Government may make rules prescribing the type and the number of spittoons to be provided and their location in any factory and such further matters as may be deemed necessary relating to their maintenance in a clean and hygienic condition.
(3) No person shall spit within the premises of a factory except in the spittoons provided for the purpose. A Notice containing this provision and the penalty for its violation shall be prominently displayed at suitable places in the premises.
(4) Whosoever spits in contravention of sub-section (3) shall be punishable with a fine not exceeding two rupees.
23. Precautions against contagious or infections disease. -
(1) Each worker in a factory shall be provided with a "Hygiene Card' in which during the month of January and July every year entries shall be recorded after examination by appointed factory doctor to the effect that the worker is not suffering from any contagious or infectious disease. The fee of such an examination shall be fixed by the Provincial Government and will be borne by the occupier or manager of the factory.
(2) If a worker is found to be suffering from any contagious or infectious disease on an examination under sub-section (1), he shall not be appointed on work till he is declared free of such a disease.
23-A. Compulsory vaccination and inoculation. - Each worker in a factory shall be vaccinated and inoculated against such diseases and at such intervals as may be prescribed. The expenses, if any, of such vaccination and inoculation shall be borne by the occupier or manager of the factory.
24. Power to make rules for provision of canteens. -
(1) The Provincial Government may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, an adequate canteen shall be provided for the use of the workers.
(2) Without prejudice to the generality of the foregoing power, such rules may provide for -
(a) the date by which such canteen shall be provided;
(b) the standards in respect of construction, accommodation, furniture and other equipment of the canteen;
(c) the foodstuffs to be served therein and the charges which may be made therefor;
(d) representation of the workmen in the management of the canteens;
(e) enabling, subject to such conditions, if any, as may be specified, the power to make rules under clause (c) to be exercised also by the Chief Inspector.
24-A. Welfare Officer. - In every factory wherein not less than five hundred workers are ordinarily employed the occupier or manager shall employ such number of welfare officers, having such qualifications, to perform such duties and on such terms and conditions as may be prescribed.
25. Precautions in case of fire. -
(1) Every factory shall be provided with such means of escape in case of fire as may be prescribed.
(2) If it appears to the Inspector that any factory is not provided with the means of escape prescribed under sub-section (1) he may serve on the manager of the factory an order in writing specifying the measures which should be adopted before a date specified in the order.
(3) In every factory the doors affording exit from any room shall not be locked or fastened so that they can be easily and immediately opened from inside while any person is within the room, and all such doors, unless they are of the sliding type, shall be constructed to open outwards or where the door is between two rooms, in the direction of the nearest exit from the building and such door shall not be locked or obstructed while work is being carried on in the room and shall at all times be kept free from any obstruction.
(4) In every factory every window, door or other exit affording means of escape in case of fire, other than means of exit in ordinary use, shall be distinctively marked in a language understood by the majority of the workers and in red letters of adequate size or by some other effective and clearly understood sign.
(5) In every factory there shall be provided effective and clearly audible means of giving warning in case of fire to every person employed therein.
(6) A free passage-way giving access to each means of escape in case of fire shall be maintained for the use of all workers in every room of the factory.
(7) In every factory wherein more than ten workers are ordinarily employed in any place above the ground floor, or explosive or highly inflammable materials are used or stored, effective measures shall be taken to ensure that all the workers are familiar with the means of escape in case of fire and have been adequately trained in the routine to be followed in such case.
(8) The Provincial Government may make rules prescribing in respect of any factory, or class or description of factories, the means of escape to be provided in case of fire and the nature and amount of firefighting apparatus to be provided and maintained.
26. Fencing of machinery. -
(1) In every factory the following shall be securely fenced by the safeguards of substantial construction which shall be kept in position while the parts of machinery required to be fenced are in motion or in use, namely -
(a) every moving part of a prime mover, and every fly wheel connected to a prime mover;
(b) the headrace and tailrace of every water wheel and water turbine;
(c) any part of a stock-bar which projects beyond head stock of a lathe; and
(d) unless they are in such position or of such construction as to be as safe to every person employed in the factory as they would be if they were securely fenced -
(i) every part of an electric generator, a motor or rotary convertor;
(ii) every part of transmission machinery; and
(iii) every dangerous part of any machinery:
Provided that, in the case of dangerous parts of machinery that cannot be securely fenced by reason of the nature of operation, such fencing may by substituted by other adequate measures, such as -
(i) devices automatically preventing the operation from coming into contact with the dangerous parts ; and
(ii) automatic stopping devices :
Provided further that, for the purpose of determining whether any part of machinery is in such position or is of such construction as to be safe as aforesaid, account shall not be taken of any occasion when it being necessary to make an examination of the machinery while it is in motion or, as a result of such examination, to carry out any mounting or shipping of belts, lubrication or other adjusting operation while the machinery is in motion, such examination or operation is made or carried out in accordance with the provisions of section 27.
(2) Without prejudice to any other provisions of this Act relating to the fencing of machinery, every set screw, bolt and key on any revolving shaft, spindle wheel or pinion and all spur, worm and other toothed or friction gearing in motion with which such worker, should otherwise be liable to come into contact, shall be securely fenced to prevent such contact.
(3) The Provincial Government may exempt, subject to such conditions as may be imposed, for securing the safety of the workers, any particular machinery or part from the provisions of this section.
(4) The Provincial Government may, by rules, prescribe such further precautions as it may consider necessary in respect of any particular machinery or part thereof.
27. Work on or near machinery in motion. -
(1) Where in any factory it becomes necessary to examine any part of machinery referred to in section 26 while the machinery is in motion, or as a result of such examination, to carry out any mounting or shipping of belts, lubrication or other adjusting operation while the machinery is in motion, such examination or operation shall be made or carried, out only by a specially trained adult male worker wearing tight fitting clothing whose name has been recorded in the register prescribed in this behalf and while he is so engaged, such worker shall not handle a belt at a moving pulley unless the belt is less than six inches in width and unless the belt joint is either laced or flush with the belt.
(2) No woman or child shall be allowed in any factory to clean, lubricate or adjust any part of machinery while that part is in motion, or to work between moving parts or between fixed and moving parts of any machinery which is in motion.
(3) The Provincial Government may, by notification in the official Gazette, prohibit, in any specified factory or class or description of factories, the cleaning, lubricating or adjusting by any person, of specified parts of machinery when those parts arc in motion.
28. Employment of young persons on dangerous machines. -
(1) No child or adolescent shall work at any machine unless he has been fully instructed as to the dangers arising in connection with the machine and the precautions to be observed and -
(a) has received sufficient training in work at the machine, or
(b) is under adequate supervision by a person who has thorough knowledge and experience of the machine.
(2) This section shall apply to such machines as may be notified by the Provincial Government to be of such a dangerous character that children or adolescents ought not to work at them unless the foregoing requirements are complied with.
29. Striking gear and devices for catting off power. -
(1) In every factory -
(a) suitable striking gear or other efficient mechanical appliances shall be provided and maintained and used to move driving belts to and from fast and loose pulleys which form part of the transmission machinery, and such gear or appliances shall be so constructed, placed and maintained as to prevent the belt from creeping back on the fast pulleys;
(b) driving belts when not in use shall not be allowed to rest or ride upon shafting in motion.
(2) In every factory suitable devices for cutting off power in emergencies from running machinery shall be provided and maintained in every workroom.
(3) In respect of factories in operation before the commencement of this Ordinance the provisions of sub-section (2) shall apply only to workrooms in which electricity is used for power.
30. Self-acting machines. - No traversing part of a self-acting machine in any factory and no material carried thereon shall, if the space over which it runs is a space over which any person is liable to pass whether in the course of his employment or otherwise, be allowed to run on its outward or inward traverse within a distance of eighteen inches from any fixed structure which is not part of the machine :
Provided that the Chief Inspector may permit the continued use of a machine installed before the commencement1 of the Labour Laws (Amendment) Ordinance, 1972, which does not comply with the requirements of this section on such conditions for ensuring safety as he may think fit to impose.
31. Casing of new machinery. -
(1) In all machinery driven by power and installed in any factory after the commencement of the Labour Laws (Amendment) Ordinance, 1972 -
(a) every set screw, belt or key on any revolving shaft, spindle, wheel or pinion shall be so sunk, encased or otherwise effectively guarded as to prevent danger; and
(b) all spur, worm and other toothed or friction gearing which does not require frequent adjustment while in motion shall be completely encased unless it is so situated as to be as safe as it would be if it were completely encased.
(2) Whoever sells or lets on hire or, as agent of a seller or hirer, causes or procures to be sold or let on hire, for use in a factory any machinery driven by power which does not comply with the provisions of sub-section (1), shall be punishable with imprisonment, for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both.
(3) The Provincial Government may make rules specifying further safeguards to be provided in respect of any other dangerous part of any particular machine or class or description of machines.
32. Prohibition of employment of women and children near cotton openers. - No woman or child shall be employed in any part of a factory for pressing cotton in which a cotton-opener is at work :
Provided that if the feed end of a cotton-opener is in a room separated from the delivery end by a partition extending to the roof or to such height as the Inspector may in any particular case specify in writing, women and children may be employed on the side of the partition where the feed end is situated.
33. Cranes and other lifting machinery. -
(1) The following provisions shall apply in respect of cranes and all other lifting machinery, other than hoists and lifts in any factory : -
(a) every part thereof, including the working gear, whether fixed or movable, ropes and chains and anchoring and fixing appliances shall be -
(i) of good construction, sound material and adequate strength ;
(ii) properly maintained ;
(iii) thoroughly examined by a competent person at least once in every period of twelve months, and a register shall be kept containing the prescribed particulars of every such examination ;
(b) no such machinery shall be loaded beyond the safe working load which shall be plainly marked thereon ;
(c) while any person is employed or working on or near the wheel tract of a travelling crane in any place where he would be liable to be struck by the crane, effective measures shall be taken to ensure that the crane does not approach within twenty feet of that place or come into accidental contact with live electrical lines ;
(d) limit switches shall be provided to prevent over-running ; and
(e) jib cranes, permitting the raising or lowering of the jib shall be provided with an automatic safe load indicator or have attached to them a table indicating the safe working load at corresponding inclinations of the jib.
(2) The Provincial Government may make rules in respect of any lifting machinery or class or description of lifting machinery in factories -
(a) prescribing requirements to be complied with in addition to those set out in this section ; or
(b) exempting from compliance with all or any of the requirements of this section, where in its opinion such compliance is unnecessary or impracticable.
33-A. Hoists and lifts -
(1) In every factory -
(a) every hoist and lift shall be -
(i) of good mechanical construction, sound material and adequate strength;
(ii) properly maintained, and shall be thoroughly examined by a competent person authorised by the Chief Inspector in this behalf at least once in every period of six months, and a register shall be kept containing the prescribed particulars of every such examination of which a copy shall be forwarded to the Chief Inspector;
(b) every hoistway and liftway shall be sufficiently protected by an enclosure fitted with gates, and the hoist or lift and every such enclosure shall be so constructed as to prevent any person or thing from being trapped between any part of the hoist or lift and any fixed structure or moving part;
(c) the maximum safe working load shall be plainly marked on every hoist or lift, and no load greater than such load shall be carried thereon;
(d) the cage of every hoist or lift used for carrying persons shall be fitted with a gate on each side from which access is afforded to a landing;
(e) every gate referred to in clause (b) or clause (d) shall be fitted with interlocking or other efficient device to secure that the gate cannot be opened except when the cage is at the landing and that the cage cannot be moved unless the gate is closed.
(2) The following additional requirements shall apply to hoists and lifts used for carrying persons and installed or reconstructed in a factory after the commencement of the Labour Laws (Amendment) Ordinance, 1972, namely: -
(a) where the cage is supported by rope or chain there shall be at least two ropes or chains separately connected with the cage and balance weight, and each rope or chain with its attachments shall be capable of carrying the whole weight of the cage together with its maximum load ;
(b) efficient devices shall be provided and maintained capable of supporting the cage together with its maximum load in the event of breakage of the ropes, chains or attachments ;
(c) an efficient automatic device shall be provided and maintained to prevent the cage from over-running.
(3) The Chief Inspector may permit the continued use of a hoist or lift installed in a factory before the commencement of this Ordinance which does not fully comply with the provisions of sub-section (1) upon such conditions for ensuring safety as he may think fit to impose.
(4) The Provincial Government may, if in respect of class or description of hoist or lift, it is of opinion that it would be unreasonable to enforce any requirement of sub-sections (1) and (2), by order direct that such requirements shall not apply to such class or description of hoist or lift.
33-B. Revolving machinery -
(1) In every room in a factory in which the process of grinding is carried on there shall be permanently affixed to or placed near each machine in use a notice indicating the maximum safe working peripheral speed of every grind stone or abrasive wheel, the speed of the shaft or spindle upon which the wheel is mounted and the diameter of the pulley upon such shaft or spindle necessary to secure such safe working peripheral speed.
(2) The speeds indicated in the notice under sub-section (1) shall not be exceeded.
(3) Effective measures shall be taken in every factory to ensure that the safe working peripheral speed of every revolving vessel, cage basket, flywheel, pulley, disc or similar appliance, driven by power is not exceeded.
33-C. Pressure plant. -
(1) If in any factory any part of the plant or machinery used in a manufacturing process is operated at a pressure above atmospheric pressure, effective measures shall be taken to ensure that safe working pressure of such part is not exceeded.
(2) The Provincial Government may make rules providing for the examination and testing of any plant or machinery such as is referred to in sub-section (1) and prescribing such other safety measures in relation thereto as may, in its opinion, be necessary in any factory or class or description of factories.
33-D. Floors, stairs and means of access. - In every factory -
(a) all floors, stairs, passages and gangways shall be of sound construction and properly maintained and where it is necessary to ensure safety, steps, stairs, ladders, passages and gangways shall be provided with substantial handrails;
(b) there shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person is at any time required to work;
(c) all places of work from which a worker may be liable to fall a distance exceeding three feet and six inches shall be provided with fencing or other suitable safeguards; and
(d) adequate provision shall be made for the drainage of floors in wet processes and for the use of slatted stands and platforms.
33-E. Pits, sumps, opening in floors, etc. -
(1) In every factory, every fixed vessel, sump, tank pit or opening in the ground or in floor which by reason of its depth, situation, construction or contents, is or may be a source of danger, shall be either securely covered or securely fenced.
(2) The Provincial Government may, by order in writing, exempt, subject to such conditions as may be imposed, any factory or class or description of factories in respect of any vessel, sump, tank pit or opening from compliance with the provisions of this section.
33-F. Excessive weights. -
(1) No person shall be employed in any factory to lift, carry or move any load so heavy as to be likely to cause him injury.
(2) The Provincial Government may make rules prescribing the maximum weights which may be lifted, carried or moved by adult men, adult women, adolescents and children employed in factories or in carrying on any specified process.
33-G. Protection of eyes. - The Provincial Government may, in respect of any manufacturing process carried on in any factory, by rule require that effective screens or suitable goggles shall be provided for the protection of persons employed on, or in the immediate vicinity of, a process which involves -
(a) risk of injury to the eyes from particles or fragments thrown off in the course of the process, or
(b) risk to the eyes by reason of exposure to excessive light or heat.
33-H. Powers to require specifications of defective parts or tests of stability. - If it appears to the Inspector that any building or any part of the ways, machinery or plant in a factory, is in such a condition that it may be dangerous to human life or safety, he may serve on the Manager of the factory an order in writing, requiring him before a specified date -
(a) to furnish such drawings, specifications and other particulars as may be necessary to determine whether such building, ways, machinery or plant can be used with safety, or
(b) to carry out such tests as may be necessary to determine the strength or quality of any specified parts and to inform the Inspector of the results thereof.
33-I. Safety of building, machinery and manufacturing process. -
(1) If it appears to the Inspector that any building or part of a building or any part of the ways, machinery or plant or manufacturing process in a factory is in such a condition that it is dangerous to human health or safety, he may serve on the Manager of the factory an order in writing specifying the measures which, in his opinion, should be adopted, and requiring them to be carried out before a specified date.
(2) If it appears to the Chief Inspector that the requisitions made under sub-section (1) are not satisfactorily fulfilled thereby involving exposure of workers to serious hazards, he may serve on the Manager of the factory an order in writing, containing a statement of the grounds of his opinion, prohibiting until the danger is removed, the employment, in or about the factory or part thereof, of any person whose employment is not in his opinion reasonably necessary for the purpose of removing the danger.
(3) If it appears to the Inspector that the use of any building or part of a building or of any part of the ways, machinery or plant or manufacturing process in a Factory involves imminent danger to human health or safety he may serve on the Manager of factory an order in writing prohibiting, until the danger is removed, the employment, in or about the factory or part thereof, of any person whose employment is not in his opinion reasonably necessary for the purpose of removing the danger.
(4) Nothing in sub-section (2) or (3) shall be deemed to affect the continuance in the employment of the factory of a person whose employment in or about the factory or part thereof is prohibited under that sub-section.
33- J. Power to make rules to supplement this Chapter. - The Provincial Government may make rules requiring that -
(1) in any factory or in any class or description of factories, such further devices and measures for securing the safety of the persons employed therein as it may deem necessary shall be adopted: and
(2) work on a manufacturing process carried on with the aid of power shall not be begun in any building or part of a building erected or taken into use as a factory until a certificate of stability in the prescribed form and signed by a person possessing the prescribed qualifications has been sent to the Chief Inspector.
33-K. Precautions against dangerous fumes. -
(1) In any factory no person shall enter or be permitted to enter any chamber, tank, vat, pit, pipe, flue or other confined space in which dangerous fumes are likely to be present to such an extent as to involve risk of persons being overcome thereby, unless it is provided with a manhole of adequate size or other effective means of ingress.
(2) No portable electric light of voltage exceeding twenty-four volts shall be permitted in any factory for use inside any confined space such as is referred to in sub-section (1) and, where the fumes present are likely to be inflammable, a lamp or light other than of flame proof construction shall not be permitted to be used in such confined space.
(3) No person in any factory shall enter or be permitted to enter any confined space such as is referred to in sub-section (1) until all practicable measures have been taken to remove any fumes which may be present and to prevent ingress of fumes and unless either -
(a) a certificate in writing has been given by a competent person, based on a test carried out by himself, that the space is free from dangerous fumes and fit for persons to enter, or
(b) the worker is wearing suitable breathing apparatus and a belt securely attached to a rope, the free end of which is held by a person standing outside the confined space.
(4) Suitable breathing apparatus, reviving apparatus and belts and ropes shall in every factory be kept ready for instant use beside any such confined space as aforesaid which any person has entered, and all such apparatus shall be periodically examined and certified by a competent person to be fit for use; and a sufficient number of persons employed in every factory shall be trained and practised in the use of all such apparatus and in the method of restoring respiration.
(5) No person shall be permitted to enter in any factory, any boiler furnace, boiler flue, chamber, tank, vat, pipe or other confined space for the purpose of working or making any examination therein until it has been sufficiently cooled by ventilation or otherwise to be safe for persons to enter.
(6) The Provincial Government may make rules prescribing the maximum dimensions of the manholes referred to in sub-section (1) and may, by order in writing, exempt, subject to such conditions as it may think fit to impose, any factory or class or description of factories from compliance with any of the provisions of this section.
33-L. Explosive or inflammable dust, gas, etc. -
(1) Where in any factory any manufacturing process produces dust, gas, fume or vapour of such character and to such extent as to be likely to explode on ignition, all practicable measures shall be taken to prevent any such explosion by -
(a) effective enclosure of the plant or machinery used in the process ;
(b) removal or prevention of the accumulation of such dust, gas, fume or vapour ;
(c) exclusion or effective enclosure of all possible sources of ignition.
(2) Where in any factory the plant or machinery used in a process such as is referred to in sub-section (1) is not so constructed as to withstand the probable pressure which such an explosion as aforesaid would produce, all practicable measures shall be taken to restrict the spread and effects of the explosion by the provision in the plant or machinery of chokes, baffles, vents or other effective appliances.
(3) Where any part of the plant or machinery in a factory contains any explosive or inflammable gas or vapour under pressure greater than atmospheric pressure, that part shall not be opened except in accordance with the following provisions, namely: -
(a) before the fastening of any joint of any pipe connected with the part of the fastening of the cover of any opening into the part is loosened, any flow of the gas or vapour into the part or any such pipe shall be effectively stopped by a stop-valve or other means;
(b) before any such fastening as aforesaid is removed all practicable measures shall be taken to reduce the pressure of the gas or vapour in the part or pipe to atmospheric pressure ;
(c) where any such fastening as aforesaid has been loosened or removed, affective measures shall be taken to prevent any explosive or inflammable gas or vapour from entering the part or pipe until the fastening has been secured, or, as the case may be, securely replaced;
Provided that the provisions of sub-section shall not apply in the case of plant or machinery installed in the open air.
(4) No plant, tank or vessel which contains or has contained any explosive or inflammable substance shall be subjected in any factory to any welding, brazing, soldering or cutting operation which involves the application of heat or to any drilling or other operation which is likely to create heat or sparks, unless adequate measures have first been taken to remove such substance and any fumes arising therefrom or to render such substance and fumes non-explosive or non-inflammable, and no such substance shall be allowed to enter such plant, tank or vessel after any such operation until the metal has cooled sufficiently to prevent any risk of igniting the substance.
(5) The Provincial Government may by rules exempt, subject to such conditions as may be prescribed, any factory or class or description of factories from compliance with all or any of the provisions of this section.
33-M. Power to exclude children. -
(1) The Provincial Government may make rules prohibiting the admission to any specified class of factories, or to specified parts thereof, of children who cannot be lawfully employed therein.
(2) If it appears to the Inspector that the presence in any factory or part of a factory of children who cannot be lawfully employed therein may be dangerous to them or injurious to their health, he may serve on the manager of the factory an order in writing directing him to prevent the admission of such children to the factory or any part of it.
33-N. Notice of certain accidents. - Where in any factory an accident occurs which causes death, or which causes any bodily injury whereby any person injured is prevented from resuming his work in the factory during the forty-eight hours after the accident occurred, or which is of any nature which may be prescribed in this behalf, the manager of the factory shall send notice thereof to such authorities, and in such form and within such time, as may be prescribed.
33-P. Appeals. -
(1) The manager of a factory on whom an order in writing by an Inspector has been served under the provisions of this Chapter, or the occupier of the factory, may, within thirty days of service of the order, appeal against it to the Provincial Government, or to such authority as the Provincial Government may appoint in this behalf, and the Provincial Government or appointed authority may, subject to rules made in this behalf by the Provincial Government, confirm, modify or reverse the order.
(2) The appellate authority may, and if so required in the petition or appeal shall, bear the appeal with the aid of assessors, one of whom shall be appointed by the appellate authority and the other by such body representing the industry concerned as the Provincial Government may prescribe in this behalf:
Provided that if no assessor is appointed by such body, or if the assessor so appointed fails to attend at the time and place fixed for hearing the appeal, the appellate authority may, unless satisfied that the failure to attend is due to sufficient cause, proceed to hear the appeal without the aid of such assessor, or if it thinks fit, without the aid of any assessor.
(3) Except in the case of an appeal against an order under sub-section (3) of section 33-I or sub-section (2) of section 33-M, the appellate authority may suspend the order appealed against pending the decision of the appeal, subject however to such conditions as to partial compliance or the adoption of temporary measures as it may choose to impose in any case.
33-Q. Additional power to make health and safety rules relating to shelters during rest. -
(1) The Provincial Government may make rules requiring that in any specified factory wherein more than one hundred and fifty workers are ordinarily employed, an adequate shelter shall be provided for the use of workers during periods of rest, and such rules may prescribe the standards of such shelters.
(2) Rooms for children. - The Provincial Government may also make rules
(a) requiring that in any specified factory, wherein more than fifty women workers are ordinarily employed, a suitable room shall be reserved for the use of children under the age of six years belonging to such women, and
(b) prescribing the standards for such rooms and the nature of the supervision to be exercised over the children therein.
(3) Certificates of stability. - The Provincial Government may also make rules, for any class of factories and for the whole or any part of the Province, requiring that work on a manufacturing process carried on with the aid of power shall not be begun in any building or part of a building erected or taken into use as a factory after the commencement of this Act, until a certificate of stability in the prescribed form, signed by a person possessing the prescribed qualifications, has been sent to the Inspector.
(4) Hazardous operations. - Where the Provincial Government is satisfied that any operation in a factory exposes any persons employed upon it to a serious risk of bodily injury, poisoning or disease, it may make rules applicable to any factory or class of factories in which the operation is carried on -
(a) specifying the operation and declaring it to be hazardous,
(b) prohibiting or restricting the employment of women, adolescents or children upon the operation,
(c) providing for the medical examination of persons employed or seeking to be employed upon the operation and prohibiting the employment of persons not certified as fit for such employment, and
(d) providing for the protection of all persons employed upon the operation or in the vicinity of the places where it is carried on.
(5) The Provincial Government may also make rules requiring the occupiers or managers of factories to maintain stores of First-Aid appliances and provide for their proper custody and use.
13. Cleanliness. -
(1) Every factory shall be kept clean and free from effluvia arising from any drain, privy or other nuisance, and in particular, -
(a) accumulation of dirt and refuse shall be removed daily by sweeping or by any other effective method from the floors and benches of work-rooms and from staircases and disposed of in a suitable manner ;
(b) the floor of every work-room shall be cleaned at least once in every week by washing, using disinfectant where necessary or by some other effective method ;
(c) where the floor is liable to become wet in the course of any manufacturing process to such extent as is capable of being drained, effective means of drainage shall be provided and maintained ;
(d) all inside walls and partitions, all ceilings, or tops of rooms and walls, sides and tops or passages and staircases shall -
(i) where they are painted or varnished, be repainted or revarnished at least once in every five years ;
(ii) where they arc painted or varnished and have smooth impervious surfaces, be cleaned at least once in every fourteen months, by such methods as may be prescribed ;
(iii) in any other case, kept whitewashed or colour washed and the whitewashing or colour washing shall be carried out at least once in every fourteen months ; and
(e) the dates on which the processes required by clause (d) are carried out shall be entered in the prescribed register.
(2) If, in view of the nature of the operations carried on in a factory it is not possible for the occupier to comply with all or any of the provisions of sub-section (1), the Provincial Government may, by an order, exempt such factory or class or description of factories from any of the provisions of that sub-section and specify alternative methods for keeping the factory in a clean state.
14. Disposal of wastes and effluents. -
(1) Effective arrangements shall be made in every factory for the disposal of wastes and effluents due to the manufacturing process carried on therein.
(2) The Provincial Government may make rules prescribing the arrangements to be made under sub-section (1) or requiring that the arrangements made in accordance with that sub-section shall be subject to the approval of such authority as may be prescribed.
15. Ventilation and temperature. -
(1) Effective and suitable provisions shall be made in every factory for securing and maintaining in every work-room -
(a) adequate ventilation by the circulation of fresh air, and
(b) such temperature as will secure to workers therein reasonable conditions of comfort and prevent injury to health, and in particular -
(i) the walls and roofs shall be of such material and so designed that such temperature shall not be exceeded but kept as low as practicable ;
(ii) where the nature of the work carried on in the factory involves, or is likely to involve, the production of excessively high temperature, such adequate measures as are practicable shall be taken to protect the workers therefrom by separating the process which produces such temperature from the work-room by insulating the hot parts or by other effective means.
(2) The Provincial Government may prescribe a standard of adequate ventilation and reasonable temperature for any factory or class or description of factories or parts thereof and direct that a thermometer shall be provided and maintained in such place and position as may be specified.
(3) If it appears to the Provincial Government that in any factory or class or description of factories excessively high temperature can be reduced by such methods as whitewashing, spraying or insulating and screening outside walls or roofs or windows, or by raising the level of the roof, or by insulating the roof either by an air space and double roof or by the use of insulating roof materials, or by other methods, it may prescribe such of these or other methods to be adopted in the factory.
16. Dust and fume. -
(1) In every factory in which, by reason of the manufacturing process carried on, there is given off any dust or fume or other impurity of such a nature and to such an extent as is likely to be injurious or offensive to the workers employed therein, effective measures shall be taken to prevent its accumulation in any work-room and its inhalation by workers and if any exhaust appliance is necessary for this purpose, it shall be applied as near as possible to the point of origin of the dust, fume or other impurity, and such point shall be enclosed so far as possible.
(2) In any factory no stationary internal combustion engine shall be operated unless the exhaust is conducted into open air and exhaust pipes are insulated to prevent scalding and radiation heat, and no internal combustion engine shall be operated in any room unless effective measures have been taken to prevent such accumulation of fumes therefrom as are likely to be injurious to the workers employed in the work-room.
17. Artificial humidification. -
(1) The Provincial Government may, in respect of all factories in which humidity of the air is artificially increased, make rules -
(a) prescribing standards of humidification ;
(b) regulating the methods used for artificially increasing the humidity of the air ;
(c) directing prescribed tests for determining the humidity of the air to be correctly carried out and recorded, and
(d) prescribing methods to be adopted for securing adequate ventilation and cooling of the air in the work-rooms.
(2) In any factory in which the humidity of the air is artificially increased, the water used for the purpose shall be taken from a public supply, or other source of drinking water, or shall be effectively purified before it is so used.
(3) If it appears to an Inspector that the water used in a factory for increasing humidity which is required to be effectively purified under sub-section (2) is not effectively purified, he may serve on the Manager of the factory an order in writing specifying the measures which, in his opinion, should be adopted, and requiring them to be carried out before a specified date.
18. Overcrowding. -
(1) No work-room in any factory shall be over-crowded to an extent injurious to the health of the workers employed therein.
(2) Without prejudice to the generality of the provisions of sub-section (1) there shall be provided for every worker employed in a work-room -
(a) at least three hundred and fifty cubic feet of space in the case of a factory in existence on the date of the commencement1 of the Labour Laws (Amendment) Ordinance, 1972; and
(b) at least five hundred cubic feet of space in the case of a factory built after the commencement of the Labour Laws (Amendment) Ordinance, 1972.
Explanation. - For the purpose of this sub-section no account shall be taken of a space which is more than fourteen feet above the level of the floor of the room.
(3) If the Chief Inspector by order in writing so requires, there shall be posted in each work-room of a factory a notice specifying the maximum number of workers who may in compliance with the provisions of this section be employed in the room.
(4) The Chief Inspector may, by order in writing, exempt, subject to such conditions as he may think fit to impose, any work-room from the provisions of this section if he is satisfied that compliance therewith in respect of such room is not necessary for the purpose of health of the workers employed therein.
19. Lighting. -
(1) In every part of a factory where workers are working or passing, there shall be provided and maintained -
(a) sufficient and suitable lighting, natural or artificial, or both; and
(b) emergency lighting of special points in work-room and passages to function automatically in case of a failure of the ordinary electric system.
(2) In every factory all glazed windows and sky-lights used for the lighting of the work-room shall be kept clean on both the outer and inner surfaces and free from obstruction as far as possible under the rules framed under sub-section (3) of section 15.
(3) In every factory effective provisions shall, so far as is practicable, be made for the prevention of -
(a) glare either directly from any source of light or by reflection from a smooth or polished surface; and
(b) the formation of shadows to such an extent as to cause eye strain or risk of accident to any worker.
(4) The Provincial Government may prescribe standards of sufficient and suitable lighting for factories or for any class or description of factories or for any manufacturing process.
20. Drinking Water. -
(1) In every factory effective arrangements shall be made to provide and maintain at suitable points conveniently situated for all workers employed therein a sufficient supply of whole-some drinking water.
(2) All such points shall be legibly marked "Drinking Water" in a language understood by the majority of the workers and no such point shall be situated within twenty feet of any washing place, urinal or latrine, unless a shorter distance is approved in writing by the Chief Inspector.
(3) In every factory wherein more than two hundred and fifty workers are ordinarily employed, provision shall be made for cooling the drinking water during the hot weather by effective means and for distribution thereof and arrangements shall also be made for -
(a) the daily renewal of water if not laid on; and
(b) a sufficient number of cups or other drinking vessels, unless the water is being delivered in an upward jet.
(4) The Provincial Government may, in respect of all factories or any class or description of factories, make rules for securing compliance with the provisions of this section.
21. Latrines and urinals. -
(1) In every factory -
(a) sufficient latrines and urinals of prescribed types shall be provided conveniently situated and accessible to workers at all times while they are in the factory;
(b) enclosed latrines and urinals shall be provided separately for male and female workers;
(c) such latrines and urinals shall be adequately lighted and ventilated and no latrine and urinal shall, unless specially exempted in writing by the Chief Inspector, communicate with any workroom except through an intervening open space or ventilated passage;
(d) all such latrines and urinals shall be maintained in a clean and sanitary condition at all times with suitable detergents or disinfectants or with both;
(e) the floors and internal walls of the latrines and urinals and the sanitary blocks shall, up to a height of three feet, be finished to provide a smooth polished impervious surface; and
(f) washing facilities shall be provided near every sanitary convenience.
(2) The Provincial Government may prescribe the number of latrines and urinals to be provided in any factory in proportion to the number of male and female workers ordinarily employed therein and such further matters in respect of sanitation in the factories as it may deem fit.
22. Spittoons. -
(1) In every factory there shall be provided, at convenient places, a sufficient number of spittoons which shall be maintained in a clean and hygienic condition.
(2) The Provincial Government may make rules prescribing the type and the number of spittoons to be provided and their location in any factory and such further matters as may be deemed necessary relating to their maintenance in a clean and hygienic condition.
(3) No person shall spit within the premises of a factory except in the spittoons provided for the purpose. A Notice containing this provision and the penalty for its violation shall be prominently displayed at suitable places in the premises.
(4) Whosoever spits in contravention of sub-section (3) shall be punishable with a fine not exceeding two rupees.
23. Precautions against contagious or infections disease. -
(1) Each worker in a factory shall be provided with a "Hygiene Card' in which during the month of January and July every year entries shall be recorded after examination by appointed factory doctor to the effect that the worker is not suffering from any contagious or infectious disease. The fee of such an examination shall be fixed by the Provincial Government and will be borne by the occupier or manager of the factory.
(2) If a worker is found to be suffering from any contagious or infectious disease on an examination under sub-section (1), he shall not be appointed on work till he is declared free of such a disease.
23-A. Compulsory vaccination and inoculation. - Each worker in a factory shall be vaccinated and inoculated against such diseases and at such intervals as may be prescribed. The expenses, if any, of such vaccination and inoculation shall be borne by the occupier or manager of the factory.
24. Power to make rules for provision of canteens. -
(1) The Provincial Government may make rules requiring that in any specified factory wherein more than two hundred and fifty workers are ordinarily employed, an adequate canteen shall be provided for the use of the workers.
(2) Without prejudice to the generality of the foregoing power, such rules may provide for -
(a) the date by which such canteen shall be provided;
(b) the standards in respect of construction, accommodation, furniture and other equipment of the canteen;
(c) the foodstuffs to be served therein and the charges which may be made therefor;
(d) representation of the workmen in the management of the canteens;
(e) enabling, subject to such conditions, if any, as may be specified, the power to make rules under clause (c) to be exercised also by the Chief Inspector.
24-A. Welfare Officer. - In every factory wherein not less than five hundred workers are ordinarily employed the occupier or manager shall employ such number of welfare officers, having such qualifications, to perform such duties and on such terms and conditions as may be prescribed.
25. Precautions in case of fire. -
(1) Every factory shall be provided with such means of escape in case of fire as may be prescribed.
(2) If it appears to the Inspector that any factory is not provided with the means of escape prescribed under sub-section (1) he may serve on the manager of the factory an order in writing specifying the measures which should be adopted before a date specified in the order.
(3) In every factory the doors affording exit from any room shall not be locked or fastened so that they can be easily and immediately opened from inside while any person is within the room, and all such doors, unless they are of the sliding type, shall be constructed to open outwards or where the door is between two rooms, in the direction of the nearest exit from the building and such door shall not be locked or obstructed while work is being carried on in the room and shall at all times be kept free from any obstruction.
(4) In every factory every window, door or other exit affording means of escape in case of fire, other than means of exit in ordinary use, shall be distinctively marked in a language understood by the majority of the workers and in red letters of adequate size or by some other effective and clearly understood sign.
(5) In every factory there shall be provided effective and clearly audible means of giving warning in case of fire to every person employed therein.
(6) A free passage-way giving access to each means of escape in case of fire shall be maintained for the use of all workers in every room of the factory.
(7) In every factory wherein more than ten workers are ordinarily employed in any place above the ground floor, or explosive or highly inflammable materials are used or stored, effective measures shall be taken to ensure that all the workers are familiar with the means of escape in case of fire and have been adequately trained in the routine to be followed in such case.
(8) The Provincial Government may make rules prescribing in respect of any factory, or class or description of factories, the means of escape to be provided in case of fire and the nature and amount of firefighting apparatus to be provided and maintained.
26. Fencing of machinery. -
(1) In every factory the following shall be securely fenced by the safeguards of substantial construction which shall be kept in position while the parts of machinery required to be fenced are in motion or in use, namely -
(a) every moving part of a prime mover, and every fly wheel connected to a prime mover;
(b) the headrace and tailrace of every water wheel and water turbine;
(c) any part of a stock-bar which projects beyond head stock of a lathe; and
(d) unless they are in such position or of such construction as to be as safe to every person employed in the factory as they would be if they were securely fenced -
(i) every part of an electric generator, a motor or rotary convertor;
(ii) every part of transmission machinery; and
(iii) every dangerous part of any machinery:
Provided that, in the case of dangerous parts of machinery that cannot be securely fenced by reason of the nature of operation, such fencing may by substituted by other adequate measures, such as -
(i) devices automatically preventing the operation from coming into contact with the dangerous parts ; and
(ii) automatic stopping devices :
Provided further that, for the purpose of determining whether any part of machinery is in such position or is of such construction as to be safe as aforesaid, account shall not be taken of any occasion when it being necessary to make an examination of the machinery while it is in motion or, as a result of such examination, to carry out any mounting or shipping of belts, lubrication or other adjusting operation while the machinery is in motion, such examination or operation is made or carried out in accordance with the provisions of section 27.
(2) Without prejudice to any other provisions of this Act relating to the fencing of machinery, every set screw, bolt and key on any revolving shaft, spindle wheel or pinion and all spur, worm and other toothed or friction gearing in motion with which such worker, should otherwise be liable to come into contact, shall be securely fenced to prevent such contact.
(3) The Provincial Government may exempt, subject to such conditions as may be imposed, for securing the safety of the workers, any particular machinery or part from the provisions of this section.
(4) The Provincial Government may, by rules, prescribe such further precautions as it may consider necessary in respect of any particular machinery or part thereof.
27. Work on or near machinery in motion. -
(1) Where in any factory it becomes necessary to examine any part of machinery referred to in section 26 while the machinery is in motion, or as a result of such examination, to carry out any mounting or shipping of belts, lubrication or other adjusting operation while the machinery is in motion, such examination or operation shall be made or carried, out only by a specially trained adult male worker wearing tight fitting clothing whose name has been recorded in the register prescribed in this behalf and while he is so engaged, such worker shall not handle a belt at a moving pulley unless the belt is less than six inches in width and unless the belt joint is either laced or flush with the belt.
(2) No woman or child shall be allowed in any factory to clean, lubricate or adjust any part of machinery while that part is in motion, or to work between moving parts or between fixed and moving parts of any machinery which is in motion.
(3) The Provincial Government may, by notification in the official Gazette, prohibit, in any specified factory or class or description of factories, the cleaning, lubricating or adjusting by any person, of specified parts of machinery when those parts arc in motion.
28. Employment of young persons on dangerous machines. -
(1) No child or adolescent shall work at any machine unless he has been fully instructed as to the dangers arising in connection with the machine and the precautions to be observed and -
(a) has received sufficient training in work at the machine, or
(b) is under adequate supervision by a person who has thorough knowledge and experience of the machine.
(2) This section shall apply to such machines as may be notified by the Provincial Government to be of such a dangerous character that children or adolescents ought not to work at them unless the foregoing requirements are complied with.
29. Striking gear and devices for catting off power. -
(1) In every factory -
(a) suitable striking gear or other efficient mechanical appliances shall be provided and maintained and used to move driving belts to and from fast and loose pulleys which form part of the transmission machinery, and such gear or appliances shall be so constructed, placed and maintained as to prevent the belt from creeping back on the fast pulleys;
(b) driving belts when not in use shall not be allowed to rest or ride upon shafting in motion.
(2) In every factory suitable devices for cutting off power in emergencies from running machinery shall be provided and maintained in every workroom.
(3) In respect of factories in operation before the commencement of this Ordinance the provisions of sub-section (2) shall apply only to workrooms in which electricity is used for power.
30. Self-acting machines. - No traversing part of a self-acting machine in any factory and no material carried thereon shall, if the space over which it runs is a space over which any person is liable to pass whether in the course of his employment or otherwise, be allowed to run on its outward or inward traverse within a distance of eighteen inches from any fixed structure which is not part of the machine :
Provided that the Chief Inspector may permit the continued use of a machine installed before the commencement1 of the Labour Laws (Amendment) Ordinance, 1972, which does not comply with the requirements of this section on such conditions for ensuring safety as he may think fit to impose.
31. Casing of new machinery. -
(1) In all machinery driven by power and installed in any factory after the commencement of the Labour Laws (Amendment) Ordinance, 1972 -
(a) every set screw, belt or key on any revolving shaft, spindle, wheel or pinion shall be so sunk, encased or otherwise effectively guarded as to prevent danger; and
(b) all spur, worm and other toothed or friction gearing which does not require frequent adjustment while in motion shall be completely encased unless it is so situated as to be as safe as it would be if it were completely encased.
(2) Whoever sells or lets on hire or, as agent of a seller or hirer, causes or procures to be sold or let on hire, for use in a factory any machinery driven by power which does not comply with the provisions of sub-section (1), shall be punishable with imprisonment, for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both.
(3) The Provincial Government may make rules specifying further safeguards to be provided in respect of any other dangerous part of any particular machine or class or description of machines.
32. Prohibition of employment of women and children near cotton openers. - No woman or child shall be employed in any part of a factory for pressing cotton in which a cotton-opener is at work :
Provided that if the feed end of a cotton-opener is in a room separated from the delivery end by a partition extending to the roof or to such height as the Inspector may in any particular case specify in writing, women and children may be employed on the side of the partition where the feed end is situated.
33. Cranes and other lifting machinery. -
(1) The following provisions shall apply in respect of cranes and all other lifting machinery, other than hoists and lifts in any factory : -
(a) every part thereof, including the working gear, whether fixed or movable, ropes and chains and anchoring and fixing appliances shall be -
(i) of good construction, sound material and adequate strength ;
(ii) properly maintained ;
(iii) thoroughly examined by a competent person at least once in every period of twelve months, and a register shall be kept containing the prescribed particulars of every such examination ;
(b) no such machinery shall be loaded beyond the safe working load which shall be plainly marked thereon ;
(c) while any person is employed or working on or near the wheel tract of a travelling crane in any place where he would be liable to be struck by the crane, effective measures shall be taken to ensure that the crane does not approach within twenty feet of that place or come into accidental contact with live electrical lines ;
(d) limit switches shall be provided to prevent over-running ; and
(e) jib cranes, permitting the raising or lowering of the jib shall be provided with an automatic safe load indicator or have attached to them a table indicating the safe working load at corresponding inclinations of the jib.
(2) The Provincial Government may make rules in respect of any lifting machinery or class or description of lifting machinery in factories -
(a) prescribing requirements to be complied with in addition to those set out in this section ; or
(b) exempting from compliance with all or any of the requirements of this section, where in its opinion such compliance is unnecessary or impracticable.
33-A. Hoists and lifts -
(1) In every factory -
(a) every hoist and lift shall be -
(i) of good mechanical construction, sound material and adequate strength;
(ii) properly maintained, and shall be thoroughly examined by a competent person authorised by the Chief Inspector in this behalf at least once in every period of six months, and a register shall be kept containing the prescribed particulars of every such examination of which a copy shall be forwarded to the Chief Inspector;
(b) every hoistway and liftway shall be sufficiently protected by an enclosure fitted with gates, and the hoist or lift and every such enclosure shall be so constructed as to prevent any person or thing from being trapped between any part of the hoist or lift and any fixed structure or moving part;
(c) the maximum safe working load shall be plainly marked on every hoist or lift, and no load greater than such load shall be carried thereon;
(d) the cage of every hoist or lift used for carrying persons shall be fitted with a gate on each side from which access is afforded to a landing;
(e) every gate referred to in clause (b) or clause (d) shall be fitted with interlocking or other efficient device to secure that the gate cannot be opened except when the cage is at the landing and that the cage cannot be moved unless the gate is closed.
(2) The following additional requirements shall apply to hoists and lifts used for carrying persons and installed or reconstructed in a factory after the commencement of the Labour Laws (Amendment) Ordinance, 1972, namely: -
(a) where the cage is supported by rope or chain there shall be at least two ropes or chains separately connected with the cage and balance weight, and each rope or chain with its attachments shall be capable of carrying the whole weight of the cage together with its maximum load ;
(b) efficient devices shall be provided and maintained capable of supporting the cage together with its maximum load in the event of breakage of the ropes, chains or attachments ;
(c) an efficient automatic device shall be provided and maintained to prevent the cage from over-running.
(3) The Chief Inspector may permit the continued use of a hoist or lift installed in a factory before the commencement of this Ordinance which does not fully comply with the provisions of sub-section (1) upon such conditions for ensuring safety as he may think fit to impose.
(4) The Provincial Government may, if in respect of class or description of hoist or lift, it is of opinion that it would be unreasonable to enforce any requirement of sub-sections (1) and (2), by order direct that such requirements shall not apply to such class or description of hoist or lift.
33-B. Revolving machinery -
(1) In every room in a factory in which the process of grinding is carried on there shall be permanently affixed to or placed near each machine in use a notice indicating the maximum safe working peripheral speed of every grind stone or abrasive wheel, the speed of the shaft or spindle upon which the wheel is mounted and the diameter of the pulley upon such shaft or spindle necessary to secure such safe working peripheral speed.
(2) The speeds indicated in the notice under sub-section (1) shall not be exceeded.
(3) Effective measures shall be taken in every factory to ensure that the safe working peripheral speed of every revolving vessel, cage basket, flywheel, pulley, disc or similar appliance, driven by power is not exceeded.
33-C. Pressure plant. -
(1) If in any factory any part of the plant or machinery used in a manufacturing process is operated at a pressure above atmospheric pressure, effective measures shall be taken to ensure that safe working pressure of such part is not exceeded.
(2) The Provincial Government may make rules providing for the examination and testing of any plant or machinery such as is referred to in sub-section (1) and prescribing such other safety measures in relation thereto as may, in its opinion, be necessary in any factory or class or description of factories.
33-D. Floors, stairs and means of access. - In every factory -
(a) all floors, stairs, passages and gangways shall be of sound construction and properly maintained and where it is necessary to ensure safety, steps, stairs, ladders, passages and gangways shall be provided with substantial handrails;
(b) there shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person is at any time required to work;
(c) all places of work from which a worker may be liable to fall a distance exceeding three feet and six inches shall be provided with fencing or other suitable safeguards; and
(d) adequate provision shall be made for the drainage of floors in wet processes and for the use of slatted stands and platforms.
33-E. Pits, sumps, opening in floors, etc. -
(1) In every factory, every fixed vessel, sump, tank pit or opening in the ground or in floor which by reason of its depth, situation, construction or contents, is or may be a source of danger, shall be either securely covered or securely fenced.
(2) The Provincial Government may, by order in writing, exempt, subject to such conditions as may be imposed, any factory or class or description of factories in respect of any vessel, sump, tank pit or opening from compliance with the provisions of this section.
33-F. Excessive weights. -
(1) No person shall be employed in any factory to lift, carry or move any load so heavy as to be likely to cause him injury.
(2) The Provincial Government may make rules prescribing the maximum weights which may be lifted, carried or moved by adult men, adult women, adolescents and children employed in factories or in carrying on any specified process.
33-G. Protection of eyes. - The Provincial Government may, in respect of any manufacturing process carried on in any factory, by rule require that effective screens or suitable goggles shall be provided for the protection of persons employed on, or in the immediate vicinity of, a process which involves -
(a) risk of injury to the eyes from particles or fragments thrown off in the course of the process, or
(b) risk to the eyes by reason of exposure to excessive light or heat.
33-H. Powers to require specifications of defective parts or tests of stability. - If it appears to the Inspector that any building or any part of the ways, machinery or plant in a factory, is in such a condition that it may be dangerous to human life or safety, he may serve on the Manager of the factory an order in writing, requiring him before a specified date -
(a) to furnish such drawings, specifications and other particulars as may be necessary to determine whether such building, ways, machinery or plant can be used with safety, or
(b) to carry out such tests as may be necessary to determine the strength or quality of any specified parts and to inform the Inspector of the results thereof.
33-I. Safety of building, machinery and manufacturing process. -
(1) If it appears to the Inspector that any building or part of a building or any part of the ways, machinery or plant or manufacturing process in a factory is in such a condition that it is dangerous to human health or safety, he may serve on the Manager of the factory an order in writing specifying the measures which, in his opinion, should be adopted, and requiring them to be carried out before a specified date.
(2) If it appears to the Chief Inspector that the requisitions made under sub-section (1) are not satisfactorily fulfilled thereby involving exposure of workers to serious hazards, he may serve on the Manager of the factory an order in writing, containing a statement of the grounds of his opinion, prohibiting until the danger is removed, the employment, in or about the factory or part thereof, of any person whose employment is not in his opinion reasonably necessary for the purpose of removing the danger.
(3) If it appears to the Inspector that the use of any building or part of a building or of any part of the ways, machinery or plant or manufacturing process in a Factory involves imminent danger to human health or safety he may serve on the Manager of factory an order in writing prohibiting, until the danger is removed, the employment, in or about the factory or part thereof, of any person whose employment is not in his opinion reasonably necessary for the purpose of removing the danger.
(4) Nothing in sub-section (2) or (3) shall be deemed to affect the continuance in the employment of the factory of a person whose employment in or about the factory or part thereof is prohibited under that sub-section.
33- J. Power to make rules to supplement this Chapter. - The Provincial Government may make rules requiring that -
(1) in any factory or in any class or description of factories, such further devices and measures for securing the safety of the persons employed therein as it may deem necessary shall be adopted: and
(2) work on a manufacturing process carried on with the aid of power shall not be begun in any building or part of a building erected or taken into use as a factory until a certificate of stability in the prescribed form and signed by a person possessing the prescribed qualifications has been sent to the Chief Inspector.
33-K. Precautions against dangerous fumes. -
(1) In any factory no person shall enter or be permitted to enter any chamber, tank, vat, pit, pipe, flue or other confined space in which dangerous fumes are likely to be present to such an extent as to involve risk of persons being overcome thereby, unless it is provided with a manhole of adequate size or other effective means of ingress.
(2) No portable electric light of voltage exceeding twenty-four volts shall be permitted in any factory for use inside any confined space such as is referred to in sub-section (1) and, where the fumes present are likely to be inflammable, a lamp or light other than of flame proof construction shall not be permitted to be used in such confined space.
(3) No person in any factory shall enter or be permitted to enter any confined space such as is referred to in sub-section (1) until all practicable measures have been taken to remove any fumes which may be present and to prevent ingress of fumes and unless either -
(a) a certificate in writing has been given by a competent person, based on a test carried out by himself, that the space is free from dangerous fumes and fit for persons to enter, or
(b) the worker is wearing suitable breathing apparatus and a belt securely attached to a rope, the free end of which is held by a person standing outside the confined space.
(4) Suitable breathing apparatus, reviving apparatus and belts and ropes shall in every factory be kept ready for instant use beside any such confined space as aforesaid which any person has entered, and all such apparatus shall be periodically examined and certified by a competent person to be fit for use; and a sufficient number of persons employed in every factory shall be trained and practised in the use of all such apparatus and in the method of restoring respiration.
(5) No person shall be permitted to enter in any factory, any boiler furnace, boiler flue, chamber, tank, vat, pipe or other confined space for the purpose of working or making any examination therein until it has been sufficiently cooled by ventilation or otherwise to be safe for persons to enter.
(6) The Provincial Government may make rules prescribing the maximum dimensions of the manholes referred to in sub-section (1) and may, by order in writing, exempt, subject to such conditions as it may think fit to impose, any factory or class or description of factories from compliance with any of the provisions of this section.
33-L. Explosive or inflammable dust, gas, etc. -
(1) Where in any factory any manufacturing process produces dust, gas, fume or vapour of such character and to such extent as to be likely to explode on ignition, all practicable measures shall be taken to prevent any such explosion by -
(a) effective enclosure of the plant or machinery used in the process ;
(b) removal or prevention of the accumulation of such dust, gas, fume or vapour ;
(c) exclusion or effective enclosure of all possible sources of ignition.
(2) Where in any factory the plant or machinery used in a process such as is referred to in sub-section (1) is not so constructed as to withstand the probable pressure which such an explosion as aforesaid would produce, all practicable measures shall be taken to restrict the spread and effects of the explosion by the provision in the plant or machinery of chokes, baffles, vents or other effective appliances.
(3) Where any part of the plant or machinery in a factory contains any explosive or inflammable gas or vapour under pressure greater than atmospheric pressure, that part shall not be opened except in accordance with the following provisions, namely: -
(a) before the fastening of any joint of any pipe connected with the part of the fastening of the cover of any opening into the part is loosened, any flow of the gas or vapour into the part or any such pipe shall be effectively stopped by a stop-valve or other means;
(b) before any such fastening as aforesaid is removed all practicable measures shall be taken to reduce the pressure of the gas or vapour in the part or pipe to atmospheric pressure ;
(c) where any such fastening as aforesaid has been loosened or removed, affective measures shall be taken to prevent any explosive or inflammable gas or vapour from entering the part or pipe until the fastening has been secured, or, as the case may be, securely replaced;
Provided that the provisions of sub-section shall not apply in the case of plant or machinery installed in the open air.
(4) No plant, tank or vessel which contains or has contained any explosive or inflammable substance shall be subjected in any factory to any welding, brazing, soldering or cutting operation which involves the application of heat or to any drilling or other operation which is likely to create heat or sparks, unless adequate measures have first been taken to remove such substance and any fumes arising therefrom or to render such substance and fumes non-explosive or non-inflammable, and no such substance shall be allowed to enter such plant, tank or vessel after any such operation until the metal has cooled sufficiently to prevent any risk of igniting the substance.
(5) The Provincial Government may by rules exempt, subject to such conditions as may be prescribed, any factory or class or description of factories from compliance with all or any of the provisions of this section.
33-M. Power to exclude children. -
(1) The Provincial Government may make rules prohibiting the admission to any specified class of factories, or to specified parts thereof, of children who cannot be lawfully employed therein.
(2) If it appears to the Inspector that the presence in any factory or part of a factory of children who cannot be lawfully employed therein may be dangerous to them or injurious to their health, he may serve on the manager of the factory an order in writing directing him to prevent the admission of such children to the factory or any part of it.
33-N. Notice of certain accidents. - Where in any factory an accident occurs which causes death, or which causes any bodily injury whereby any person injured is prevented from resuming his work in the factory during the forty-eight hours after the accident occurred, or which is of any nature which may be prescribed in this behalf, the manager of the factory shall send notice thereof to such authorities, and in such form and within such time, as may be prescribed.
33-P. Appeals. -
(1) The manager of a factory on whom an order in writing by an Inspector has been served under the provisions of this Chapter, or the occupier of the factory, may, within thirty days of service of the order, appeal against it to the Provincial Government, or to such authority as the Provincial Government may appoint in this behalf, and the Provincial Government or appointed authority may, subject to rules made in this behalf by the Provincial Government, confirm, modify or reverse the order.
(2) The appellate authority may, and if so required in the petition or appeal shall, bear the appeal with the aid of assessors, one of whom shall be appointed by the appellate authority and the other by such body representing the industry concerned as the Provincial Government may prescribe in this behalf:
Provided that if no assessor is appointed by such body, or if the assessor so appointed fails to attend at the time and place fixed for hearing the appeal, the appellate authority may, unless satisfied that the failure to attend is due to sufficient cause, proceed to hear the appeal without the aid of such assessor, or if it thinks fit, without the aid of any assessor.
(3) Except in the case of an appeal against an order under sub-section (3) of section 33-I or sub-section (2) of section 33-M, the appellate authority may suspend the order appealed against pending the decision of the appeal, subject however to such conditions as to partial compliance or the adoption of temporary measures as it may choose to impose in any case.
33-Q. Additional power to make health and safety rules relating to shelters during rest. -
(1) The Provincial Government may make rules requiring that in any specified factory wherein more than one hundred and fifty workers are ordinarily employed, an adequate shelter shall be provided for the use of workers during periods of rest, and such rules may prescribe the standards of such shelters.
(2) Rooms for children. - The Provincial Government may also make rules
(a) requiring that in any specified factory, wherein more than fifty women workers are ordinarily employed, a suitable room shall be reserved for the use of children under the age of six years belonging to such women, and
(b) prescribing the standards for such rooms and the nature of the supervision to be exercised over the children therein.
(3) Certificates of stability. - The Provincial Government may also make rules, for any class of factories and for the whole or any part of the Province, requiring that work on a manufacturing process carried on with the aid of power shall not be begun in any building or part of a building erected or taken into use as a factory after the commencement of this Act, until a certificate of stability in the prescribed form, signed by a person possessing the prescribed qualifications, has been sent to the Inspector.
(4) Hazardous operations. - Where the Provincial Government is satisfied that any operation in a factory exposes any persons employed upon it to a serious risk of bodily injury, poisoning or disease, it may make rules applicable to any factory or class of factories in which the operation is carried on -
(a) specifying the operation and declaring it to be hazardous,
(b) prohibiting or restricting the employment of women, adolescents or children upon the operation,
(c) providing for the medical examination of persons employed or seeking to be employed upon the operation and prohibiting the employment of persons not certified as fit for such employment, and
(d) providing for the protection of all persons employed upon the operation or in the vicinity of the places where it is carried on.
(5) The Provincial Government may also make rules requiring the occupiers or managers of factories to maintain stores of First-Aid appliances and provide for their proper custody and use.
Tuesday, August 30, 2011
Monday, August 29, 2011
BUSINESS LAW: The Inspecting Staff
The Inspecting Staff
10. Inspectors. - (1) The Provincial Government may, by notification in the Official Gazette, appoint such persons as it thinks fit to be Inspectors for the purposes of this Act within such local limits as it may assign to them respectively.
(2) The Provincial Government may, by notification as aforesaid, appoint any person to be a Chief Inspector, who shall, in addition to the powers conferred on a Chief Inspector under this Act, exercise the powers of an Inspector throughout the Province.
(3) No person shall be appointed to be an Inspector under sub-section (1) or a Chief Inspector under sub-section (2) or having been so appointed, shall continue to hold office, who is or becomes directly or indirectly interested in a factory or in any process or business carried on therein or in any patent or machinery connected therewith.
(4) Every District Magistrate shall be an Inspector for his district.
(5) The Provincial Government may also, by notification as aforesaid, appoint such public officers as it thinks fit to be additional Inspectors for all or any of the purposes of the Act, within such local limits as it may assign to them respectively.
(6) To any area where there are more Inspectors than one, the Provincial Government may by notification as aforesaid declare the powers which such Inspectors shall respectively exercise, and the Inspectors to whom the prescribed notices are to be sent.
(7) Every Chief Inspector and Inspector shall be deemed to be a public servant within the meaning of the Pakistan Penal Code (XLV of 1860) and shall be officially subordinate to such authority as the Provincial Government may specify in this behalf.
11. Powers of Inspector. - Subject to any rules made by the Provincial Government in this behalf, an Inspector may, within the local limits for which he is appointed, -
(a) enter with such assistants (if any), being persons in the service of the state or of any municipal or other public authority, as he thinks fit, any place which is or which he has reason to believe to be, used as a factory or capable of being declared to be a factory under the provisions of section 5;
(b) make such examination of the premises and plant and of any prescribed registers, and take on the spot or otherwise such evidence of persons as be may deem necessary for carrying out the purposes of this Act; and
(c) exercise such other powers as may be necessary for carrying out the purposes of this Act:
Provided that no one shall be required under this section to answer any question or give any evidence tending to criminate himself.
12. Certifying surgeons.-
(1) The Provincial Government may appoint such registered medical practitioners as it thinks fit to be certifying surgeons for the purposes of this Act within such local limits as it may assign to them respectively.
(2) A certifying surgeon may authorise any registered medical practitioner to exercise any of his powers under this Act:
Provided that a certificate of fitness for employment granted by such authorised practitioner shall be valid for a period of three months only, unless it is confirmed by the certifying surgeon himself after examination of the person concerned.
Explanation. - In this section a "registered medical practitioner" means any person registered under any Act of the Central Legislature or any Provincial Legislature providing for the maintenance of a register of medical practitioners, and includes, in any area where no such register is maintained, any person declared by the Provincial Government by notification in the Official Gazette, to be a registered medical practitioner for the purposes of this section.
10. Inspectors. - (1) The Provincial Government may, by notification in the Official Gazette, appoint such persons as it thinks fit to be Inspectors for the purposes of this Act within such local limits as it may assign to them respectively.
(2) The Provincial Government may, by notification as aforesaid, appoint any person to be a Chief Inspector, who shall, in addition to the powers conferred on a Chief Inspector under this Act, exercise the powers of an Inspector throughout the Province.
(3) No person shall be appointed to be an Inspector under sub-section (1) or a Chief Inspector under sub-section (2) or having been so appointed, shall continue to hold office, who is or becomes directly or indirectly interested in a factory or in any process or business carried on therein or in any patent or machinery connected therewith.
(4) Every District Magistrate shall be an Inspector for his district.
(5) The Provincial Government may also, by notification as aforesaid, appoint such public officers as it thinks fit to be additional Inspectors for all or any of the purposes of the Act, within such local limits as it may assign to them respectively.
(6) To any area where there are more Inspectors than one, the Provincial Government may by notification as aforesaid declare the powers which such Inspectors shall respectively exercise, and the Inspectors to whom the prescribed notices are to be sent.
(7) Every Chief Inspector and Inspector shall be deemed to be a public servant within the meaning of the Pakistan Penal Code (XLV of 1860) and shall be officially subordinate to such authority as the Provincial Government may specify in this behalf.
11. Powers of Inspector. - Subject to any rules made by the Provincial Government in this behalf, an Inspector may, within the local limits for which he is appointed, -
(a) enter with such assistants (if any), being persons in the service of the state or of any municipal or other public authority, as he thinks fit, any place which is or which he has reason to believe to be, used as a factory or capable of being declared to be a factory under the provisions of section 5;
(b) make such examination of the premises and plant and of any prescribed registers, and take on the spot or otherwise such evidence of persons as be may deem necessary for carrying out the purposes of this Act; and
(c) exercise such other powers as may be necessary for carrying out the purposes of this Act:
Provided that no one shall be required under this section to answer any question or give any evidence tending to criminate himself.
12. Certifying surgeons.-
(1) The Provincial Government may appoint such registered medical practitioners as it thinks fit to be certifying surgeons for the purposes of this Act within such local limits as it may assign to them respectively.
(2) A certifying surgeon may authorise any registered medical practitioner to exercise any of his powers under this Act:
Provided that a certificate of fitness for employment granted by such authorised practitioner shall be valid for a period of three months only, unless it is confirmed by the certifying surgeon himself after examination of the person concerned.
Explanation. - In this section a "registered medical practitioner" means any person registered under any Act of the Central Legislature or any Provincial Legislature providing for the maintenance of a register of medical practitioners, and includes, in any area where no such register is maintained, any person declared by the Provincial Government by notification in the Official Gazette, to be a registered medical practitioner for the purposes of this section.
Sunday, August 28, 2011
BUSINESS LAW:THE FACTORIES ACT, 1934 as amended to 1997 DEFINITIONS
Definitions. - In this Act, unless there is anything repugnant in the
subject or context. -
(a) "adolescent" means a person who has completed his fifteenth but has not completed his seventeenth year ;
(b) "adult" means a person who has completed his seventeenth year ;
(c) "child" means a person who has not completed his fifteenth year ;
(d) "day" means a period of twenty-four hours beginning at mid-night;
(e) "week" means a period of seven days beginning at mid-night on Saturday night;
(f) "power" means electric energy, and any other form of energy which is mechanically transmitted and is not generated by human or animal agency ;
(g) "manufacturing process" means any process -
(i) for making, altering, repairing, ornamenting, finishing or packing, or otherwise treating any article or substance with a view to its use, sale, transport, delivery or disposal, or
(ii) for pumping oil, water or sewage, or
(iii) for generating, transforming or transmitting power;
(h) "worker" means a person employed directly or through an agency whether for wages or not in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work whatsoever, incidental to or connected with the subject of the manufacturing process, but does not include any person solely employed in a clerical capacity in any room or place where no manufacturing process is being carried on ;
(j) "factory" means any premises, including the precincts thereof, whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily carried on with or without the aid of power, but does not include a mine, subject to the operation of the Mines Act, 1923 (IV of 1923) :
(k) "machinery" includes all plant whereby power is generated, transformed, transmitted or applied.
(l) "occupier" of a factory means the person who has ultimate control over the affairs of the factory:
Provided that where the affairs of a factory are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory ;
(m) where work of the same kind is carried out by two or more sets of workers working during different periods of the day, each of such sets is called a "relay" and the period or periods for which it works is called a "shift"; and
(n) "prescribed" means prescribed by rules made by the Provincial Government under this Act.
3. Reference to time of day. - Reference to time of day in this Act are references to Standard Time which is five hours ahead of Greenwich Mean Times ,
Provided that for any area, in which Standard Time is ordinarily observed the Provincial Government may make rules: -
(i) specifying the area,
(ii) defining the local mean time ordinarily observed therein, and
(iii) permitting such time to be observed in all or any of the factories situated in the area.
4. Seasonal factories. -
(1) For the purposes of this Act, a factory, which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or cotton jute pressing, the decortication of groundnuts, the manufacture of coffee indigo, lac, rubber, sugar (including gur) or tea or any of the aforesaid processes, is a seasonal factory :
Provided that the Provincial Government may, by notification in the Official Gazette, declare any such factory in which manufacturing processes are ordinarily carried on for more than one hundred and eighty working days in the year, not to be a seasonal factory for the purposes of this Act.
(2) The Provincial Government may, by notification in the Official Gazette, declare any specified factory in which manufacturing processes are ordinarily carried on for more than one hundred and eighty working days in the year and cannot be carried on except during particular season or at times dependent on the irregular action of natural forces, to be a seasonal factory for the purposes of this Act.
5. Power to apply provisions applicable to factories to certain other places -
(1) The Provincial Government may, by notification in Official Gazette, declare that all or any of the provisions of this Act applicable to factories shall apply to any place wherein a manufacturing process is being carried on or is ordinarily carried on whether with or without the use of power whenever five or more workers are working therein or have worked therein on any one day of the twelve months immediately preceding.
(2) A notification under sub-section (1) may be made in respect of any one such place or in respect of any class of such places or generally in respect of all such places.
(3) Notwithstanding anything contained in clause (j) of section 2, a place to which all or any of the provisions of this Act applicable to factories are for the time being applicable in pursuance of a declaration under sub-section (1) shall, to the extent to which such provisions are so made applicable but not otherwise, deemed to be a factory.
6. Power to declare departments to be separate factories. - The Provincial Government may, by order in writing, direct that the different departments or branches of a specified factory shall be treated as separate factories for all or any of the purposes of this Act.
7. Power to exempt on a change in the factory. - When the Provincial Government is satisfied that, following upon a change of occupier of a factory or in the manufacturing process carried on therein, the number of workers for the time being working in the factory is less than twenty and is not likely to be twenty or more on any day during the ensuing twelve months, it may by order in writing exempt such factory from operation of this Act :
Provided that any exemption so granted shall cease to have effect on and after any day on which twenty or more workers work in the factory.
7-A. Exemption from certain provisions of the Act. - The provisions of section 14, clause (b) of sub-section (1) of section 15, sections 16, 17, 18, 21, 22, 23, 25 and sub-section (3) of section 33Q shall not apply in the first instance to any factory wherein not more than 19 workers are working or were working on any one day of the 12 months immediately preceding :
Provided that the Provincial Government may, by notification in the official Gazette, apply all or any of the said provisions to any such factory or class of such factories.
8. Power to exempt during public emergency. - In any case of public emergency the Provincial Government may, by notification in the Official Gazette, exempt any factory from any or all of the provisions of this Act for such period as it may think fit.
9. Notice to Inspector before commencement of work. -
(1) Before work is begun in any factory after the commencement of this Act, or before work is begun in any seasonal factory each season, the occupier shall send to the Inspector a written notice containing -
(a) the name of the factory and its situation,
(b) the address to which communications relating to the factory should be sent,
(c) the nature of the manufacturing processes to be carried on in the factory,
(d) the nature and amount of the power to be used,
(e) the name of the person who shall be the manager of the factory for the purposes of this Act, and
(f) such other particulars as may be prescribed for the purposes of this Act.
(1-A) In respect of all factories which come within the scope of this Act for the first time on the commencement4 of the Factories (Amendment) Ordinance, 1972, the occupier shall send a written notice to the Inspector containing particulars specified in sub-section (1) within 30 days of such commencement.
(2) Whenever another person is appointed as manager the occupier shall send to the Inspector a written notice of the change, within seven days from the date on which the new manager assumes charge.
(3) During any period for which no person has been designated as manager of a factory under this section, or during which the person designated does not manage the factory, any person found acting as manager or if no such person is found, the occupier himself, shall be deemed to be the manager of the factory for the purposes of this Act.
subject or context. -
(a) "adolescent" means a person who has completed his fifteenth but has not completed his seventeenth year ;
(b) "adult" means a person who has completed his seventeenth year ;
(c) "child" means a person who has not completed his fifteenth year ;
(d) "day" means a period of twenty-four hours beginning at mid-night;
(e) "week" means a period of seven days beginning at mid-night on Saturday night;
(f) "power" means electric energy, and any other form of energy which is mechanically transmitted and is not generated by human or animal agency ;
(g) "manufacturing process" means any process -
(i) for making, altering, repairing, ornamenting, finishing or packing, or otherwise treating any article or substance with a view to its use, sale, transport, delivery or disposal, or
(ii) for pumping oil, water or sewage, or
(iii) for generating, transforming or transmitting power;
(h) "worker" means a person employed directly or through an agency whether for wages or not in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work whatsoever, incidental to or connected with the subject of the manufacturing process, but does not include any person solely employed in a clerical capacity in any room or place where no manufacturing process is being carried on ;
(j) "factory" means any premises, including the precincts thereof, whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily carried on with or without the aid of power, but does not include a mine, subject to the operation of the Mines Act, 1923 (IV of 1923) :
(k) "machinery" includes all plant whereby power is generated, transformed, transmitted or applied.
(l) "occupier" of a factory means the person who has ultimate control over the affairs of the factory:
Provided that where the affairs of a factory are entrusted to a managing agent, such agent shall be deemed to be the occupier of the factory ;
(m) where work of the same kind is carried out by two or more sets of workers working during different periods of the day, each of such sets is called a "relay" and the period or periods for which it works is called a "shift"; and
(n) "prescribed" means prescribed by rules made by the Provincial Government under this Act.
3. Reference to time of day. - Reference to time of day in this Act are references to Standard Time which is five hours ahead of Greenwich Mean Times ,
Provided that for any area, in which Standard Time is ordinarily observed the Provincial Government may make rules: -
(i) specifying the area,
(ii) defining the local mean time ordinarily observed therein, and
(iii) permitting such time to be observed in all or any of the factories situated in the area.
4. Seasonal factories. -
(1) For the purposes of this Act, a factory, which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or cotton jute pressing, the decortication of groundnuts, the manufacture of coffee indigo, lac, rubber, sugar (including gur) or tea or any of the aforesaid processes, is a seasonal factory :
Provided that the Provincial Government may, by notification in the Official Gazette, declare any such factory in which manufacturing processes are ordinarily carried on for more than one hundred and eighty working days in the year, not to be a seasonal factory for the purposes of this Act.
(2) The Provincial Government may, by notification in the Official Gazette, declare any specified factory in which manufacturing processes are ordinarily carried on for more than one hundred and eighty working days in the year and cannot be carried on except during particular season or at times dependent on the irregular action of natural forces, to be a seasonal factory for the purposes of this Act.
5. Power to apply provisions applicable to factories to certain other places -
(1) The Provincial Government may, by notification in Official Gazette, declare that all or any of the provisions of this Act applicable to factories shall apply to any place wherein a manufacturing process is being carried on or is ordinarily carried on whether with or without the use of power whenever five or more workers are working therein or have worked therein on any one day of the twelve months immediately preceding.
(2) A notification under sub-section (1) may be made in respect of any one such place or in respect of any class of such places or generally in respect of all such places.
(3) Notwithstanding anything contained in clause (j) of section 2, a place to which all or any of the provisions of this Act applicable to factories are for the time being applicable in pursuance of a declaration under sub-section (1) shall, to the extent to which such provisions are so made applicable but not otherwise, deemed to be a factory.
6. Power to declare departments to be separate factories. - The Provincial Government may, by order in writing, direct that the different departments or branches of a specified factory shall be treated as separate factories for all or any of the purposes of this Act.
7. Power to exempt on a change in the factory. - When the Provincial Government is satisfied that, following upon a change of occupier of a factory or in the manufacturing process carried on therein, the number of workers for the time being working in the factory is less than twenty and is not likely to be twenty or more on any day during the ensuing twelve months, it may by order in writing exempt such factory from operation of this Act :
Provided that any exemption so granted shall cease to have effect on and after any day on which twenty or more workers work in the factory.
7-A. Exemption from certain provisions of the Act. - The provisions of section 14, clause (b) of sub-section (1) of section 15, sections 16, 17, 18, 21, 22, 23, 25 and sub-section (3) of section 33Q shall not apply in the first instance to any factory wherein not more than 19 workers are working or were working on any one day of the 12 months immediately preceding :
Provided that the Provincial Government may, by notification in the official Gazette, apply all or any of the said provisions to any such factory or class of such factories.
8. Power to exempt during public emergency. - In any case of public emergency the Provincial Government may, by notification in the Official Gazette, exempt any factory from any or all of the provisions of this Act for such period as it may think fit.
9. Notice to Inspector before commencement of work. -
(1) Before work is begun in any factory after the commencement of this Act, or before work is begun in any seasonal factory each season, the occupier shall send to the Inspector a written notice containing -
(a) the name of the factory and its situation,
(b) the address to which communications relating to the factory should be sent,
(c) the nature of the manufacturing processes to be carried on in the factory,
(d) the nature and amount of the power to be used,
(e) the name of the person who shall be the manager of the factory for the purposes of this Act, and
(f) such other particulars as may be prescribed for the purposes of this Act.
(1-A) In respect of all factories which come within the scope of this Act for the first time on the commencement4 of the Factories (Amendment) Ordinance, 1972, the occupier shall send a written notice to the Inspector containing particulars specified in sub-section (1) within 30 days of such commencement.
(2) Whenever another person is appointed as manager the occupier shall send to the Inspector a written notice of the change, within seven days from the date on which the new manager assumes charge.
(3) During any period for which no person has been designated as manager of a factory under this section, or during which the person designated does not manage the factory, any person found acting as manager or if no such person is found, the occupier himself, shall be deemed to be the manager of the factory for the purposes of this Act.
Friday, August 26, 2011
MARKET TERMINOLOGIES
MARKET TERMINOLOGIES
24-Hour loans
Loans for which 24 hours, notice has to be given by the borrower or lender of an intention to repay or recall the funds or renegotiate the interest rate. By market convention, such loans are made for initial period of 7 days.
Abnormal return
A realized return in excess of the return expected for a given level of risk
Acceptor
The party, usually a bank, who accepts primary responsibility for paying the face value of a bill of exchange to the holder of the bill at its maturity date
Accounting rate of return
The earnings from a project expressed as a percentage of the investment outlay
Accounts receivable
Money owed to a business for good or services sold in the ordinary course of business
Acid test ratio see quick ratio
Agency costs
Costs that arise due to a conflict of interest between principals and agents (for example, between shareholders and mangers). These costs include monitoring costs borne by principals in an attempt to ensure that agents act in the principals, best interests
American option
An option contract that may be exercised at any time up to and including the expiry date. See European option
Annuity
A cash flow stream of equal amounts, paid at equal time intervals for a specified number of periods
Annuity due
Annuity where the first payment is to occur immediately
Arbitrage
Buying an asset and simultaneously selling it for a higher price, usually in another market , so as to make a risk-free profit
Arbitrage pricing model
A model of asset pricing that describes the risk premium for a risky asset as a linear combination of various risk factors
Arbitrageur
A person engaged in arbitrage. See arbitrage
Australian Stock exchange (ASX)
The national stock exchange formed in April 1987 by amalgamation of the six state stock exchanges. This created on body to govern share market trading in Australia. The exchange sets uniform trading rules, listing requirements and ethical standards
Average collection period
The average period required by a firm to collect a credit account. It is calculated from accounts receivable divided by (annual credit sales/365)
Bad debts
Accounts receivable that have proven to be uncollectible and are written off
Bank-accepted bill a
A negotiable bill where a bank guarantees payment of the bill‘s face value at maturity. This guarantee is made at the inception of the bill.
Bank bill
A bill of exchange that has been accepted or endorsed by a bank
Bank-endorsed bill
A bill of purchased by a bank which when sold carries a guarantee that, if necessary, the bank will pay the face value at maturity
Bankruptcy
In Australia, a legal status applying to individuals unable to pay their debts. American usage, which has been followed in this book, extends this concept to cover corporations. See liquidation
Bankruptcy costs
The direct and indirect costs associated with financial difficulty that leads to control of a company being transferred to lenders
Basis point
The unit measure when describing changed in interest rates in financial markets. \if an interest rated changes from 10 per cent to 10.01 per cent, the
rate has increased one basis point. Thus a basis point is one hundredth of a per cent
Benefit- cost ratio or Profitability index
An index use in investment evaluation, calculated by dividing the present value of the future net cash flows by the initial cash outlay
Beta
A measure of a security‘s systematic risk, describing the amount of risk contributed by the security to the market portfolio
Bid-ask spread
The difference between the price buyers are prepared to pay for an asset and the price at which sellers are offering to sell the asset
Bill of exchange
Signed, written order by which one party (the drawer) instructs another party (the accepter) to pay a specified sum to , or to the order of , a specified party or to the bearer
Bird-in-the-hand dividend theory
The theory that investors prefer dividend income to capital gain because current dividends are more certain than future capital gain
Bonds or debentures
Long-term debt securities
Bonus issue
A free issue of shares to existing shareholders in proportion to their current shareholding
Book value
The depreciated amount of a firm‘s assets (acquisition cost or revalued amount less accumulated depreciation)
Business risk
The variability of future net cash flows attributed to the nature of the company‘s operations. It is the risk shareholders face if the company is financed only by the equity
Call option
An option in which the buyer has the right but not the obligation to buy an asset (such as shares) at a specified exercise price within a specified time period
Capital asset pricing model
A model that describes the equilibrium relationship between risk and expected return by risky assets and portfolios
Capital gain and loss
The difference between the acquisition cost of an asset and its disposal price, the gain or loss that arises from the sale of an asset
Capital market
The market in which long-term financial securities are traded
Capital market line
The efficient set of all portfolios that provides the investor with the best possible investment opportunities when a risk-free asset is available. It describes the equilibrium risk-return relationship for efficient portfolios, where the expected return is a function of the risk-free interest rate, the expected market risk premium, and the proportionate risk of the efficient portfolio to the risk of the market portfolio
Capital structure
The mix of debt and equity finance used by a company
Carrying costs
Costs that increase as the level of investment in current asset increases
Characteristic line
The line that describes the relationship between the returns on a particular security and the returns on the market portfolio
Classical tax system
The system that operated in Australia until 30th June 1987which meant that company profits, and dividends paid from those profits, were taxed separately--- that is , profit paid as a dividend was effectively taxed twice
Clientele effect
The effect of investors choosing to invest in firms that have policies meeting their particular requirements. For example, investors who require high current income may choose to invest in firm that have high dividend payouts
Collection policy
The efforts made to collect delinquent accounts either informally or by a debt collection agency
Commercial hire purchase
An agreement to purchase goods by installment payments
Commercial paper see Promissory note company
A separate legal entity formed under the Corporations Law
Compound interest
Interest calculated each period on the principal amount and on any interest earned on the investment up to that point
Consistency principle
In applying the net present value model, the net cash flows in the numerator should be defined and measured in a way that is consistent with the measurement of the discount rate in the denominator
Constant chain of replacement assumption
Used to evaluate projects of unequal lives; the project are assumed to be replaced to a common point in time by projects which are identical in terms of cash flow stream, technology, life span, and so on
Consumer credit
Credit extended to individuals by suppliers of goods and services, or by financial institutions through credit cards
Conventional projects
Those with a cash flow pattern which involves an initial cash outlay followed by a series of positive net cash followed by a series of positive net cash flows
Convertible note
A debt security which, at the option of the investor, may be converted into a specified number of ordinary shares at maturity
Correlation coefficient
A statistical measure describing the degree of relationship between two variables
Cost of capital
The minimum rate of return needed to compensate suppliers of capital for committing resources to an investment
Coupon rate
The amount of interest payable annually on a bond or on debenture, expressed as a percentage of the face value
Covariance
A statistical measure describing the degree of relationship between the returns of two assets
Credit foncier loans
A type of loan that involves regular payments which include principle and interest
Credit period
The period between the date that a purchaser is invoiced and the date when payment is due
Credit policy
A supplier‘s policy on whether credit will be offered to customers and on the terms that will be offered
Credit risk
The possibility of loss because of default by the counterparty to a transaction
Cum-dividend period
The period during which the purchaser of a share is qualified to receive a previously announced dividend. The cum-dividend period ends on the ex-dividend date
Cum rights
When shares are traded cum right the buyer is entitled to participate in the forthcoming rights issue
Cum-right period
The time period during which the purchaser of a share during qualifies for receipt of a previously announced rights issue. The cum-rights period ends on the ex-rights date
Current assets
Cash, inventory, accounts receivable and other assets that will normally be converted into cash within a year
Current liabilities
Debuts or other obligations due for payment within a year
Current ratio
A liquidity ratio measured by current assets divided by current liabilities
Debenture
A long-term debt security issued by a company
Debt
The obligation of an entity to pay a specific amount of money to another entity
Default risk
The chance that a borrower will fail to meet obligations to pay interest and principal as promised
Delinquent accounts
Accounts where payment has not been made by the due date
Depreciation
The process of allocation the cost (or other value) less estimated disposal value of a non-current asset over its expected useful life. The two main methods of calculating depreciation are the straight-line and reducing-balance methods
Derivative security
A security whose value depends on the value of an underlying security
Discount period
The period during which a discount for prompt payment is available to the purchaser
Discount rate
An expression of the price reduction a purchaser will receive if payment is made within the discount period
Discount cash flow (DCF) methods
Those methods that involve the process of discounting a series of future net cash flows to their present values
Discounter
A party who provides or lends funds by purchasing a bill of exchange or other short-term security
Diversifiable risk
That element of total risk unique to the firm and which may be eliminated by diversification
Dividends
Periodic distribution of profit, usually in cash, by a company to its shareholders. In Australia
Dividend clienteles
Groups of investors who choose to invest in companies that have dividend policies which meet their particular requirements
Dividend drop-off ratio
The ratio of the decline in the share price on the ex-dividend date to the dividend per share
Dividend growth model
Model expressing the value of a share as the sum of the present values of future dividends where the dividends are assumed to grow at a constant rate
Dividend imputation tax system
System under which profits distributed as dividends are taxed only once because shareholders receive a credit for tax paid by the company
Dividend payout ratio
The percentage of profit paid out to shareholders as dividends
Dividend reinvestment plan
An arrangement made by a company which gives its shareholders an option of reinvesting all or part of their dividends in additional shares in the company usually at a small discount from the marker price
Dividend yield
The dividend per share, divided by the current price of the share
Drawer
The party who issue a bill of exchange
Earning per share (EPS)
A company‘s profit, divided by the number of ordinary shares on issue
Economic order quantity (EOQ)
The optimal quantity of inventory ordered that minimises the cost of purchasing and holding the inventory
Effective interest rate
Interest rate earned per year that builds in the effect of compounding
Efficient market
A market in which security prices fully reflect all available information
Efficient market hypothesis
The hypothesis that asset prices fully reflect all available information about
(EMH)
the asset.The implies that prices adjust instantaneously and in an unbiased way to new information about the asset. Therefore investors cannot consistently earn abnormal returns
Efficient portfolio
A portfolio that maximizes the expected return for a given level of risk
Equity
The ownership interest is the firm. In the case of a company it is represented shareholders‘ funds
Equivalent annual value method
Involves calculating the annual cash flow of an annuity that has the same life as the project and whose present value equals the net value of the project
Eurobond
A medium to long-term international bearer security sold in countries other than the country of the currency in which the bond is denominated
European option
An option that can be exercised only on the expiration date. See American option
Exchange rate
The price of one country‘s currency expressed in terms of another country‘s currency
Ex-dividend date
the date on which a share begins trading ex-dividend. A share purchased ex-dividend does not include a right to the forthcoming dividend payment
Ex-right date
The date on which a share begins trading ex-rights. After this date a share does not have attached to it the right to purchase any additional share(s) on the subscription date
Exercise (or strike) price
The price at which an option holder can buy (if it is a call option) or sell (if it is put option) the underlying security
Expected rate of return
The expected return, divided by the sum invested
Expected return
The mean value of the probability distribution of possible outcomes for returns of a security
Factoring
The sale of a firm‘s accounts receivable at a discount to a financial institution (the factor)
Finance lease
A long-term non-cancellable lease that effectively transfers the risks and benefits of ownership of an asset from the lessor to the lease
Financial agency institution
One which arranges or facilitates the direct transfer of funds from lenders to borrowers
Financial assets
Assets such as shares, bonds, deposits. The holders of financial assets issued by a business have claims against its real assets
Financial derivatives
Securities whose value depends on the value of an underlying financial security and includes futures contracts, options and swaps
Financial distress
A situation where a company‘s financial obligations cannot be met, or can be met only with difficulty
Financial distress costs
Direct costs (such as legal and administrative costs) and indirect costs (such as impaired ability to conduct business) associated with financial distress
Financial futures contract
A futures contract where the underlying asset is financial in nature rather than a commodity
Financial intermediary
An institution that acts as a principal in accepting funds from depositors and lending them to borrowers
Financial leverage
The relationship between borrowing and equity. Financial leverage is measured by ratio
Financial risk
The risk attributable to the use of debt as a source of finance
Fixed charge
A form of security which, if the borrower defaults on the loan contract, gives the lender the right to take control of the specific asset (or assets) pledged
Floating charge
A form of security which, if the borrower defaults on the loan contract, gives the lender the right to take control of any of the borrower‘s assets other than those specifically pledged to another lender
Foreign bond
A bond issued outside the borrower‘s country and denominated in the currency of the country in which it is issued
Foreign exchange market
A market in which the world‘s currencies are bought and sold
Forward contract
A contract in which a seller agrees to deliver an asset to a buyer on an agreed future date
Forward price
The price of an asset purchased for a delivery at a given time in future. Examples include exchange rates and interest rates
Forward-rate agreement
An agreement to pay or receive a sum of money representing an interest differential, such that the interest rate applicable to a specified period is fixed
Franked dividend
A dividend that carries a credit for income tax paid by the company
Franking premium
That part of the return on shares or a share market index which is due to tax credits associated with franked dividend
Free cash flow
Cash generated by a company that cannot be invested profitably in its existing lines of business
Fully drawn facilities
Those which provide a borrower with a specified amount of funds for a specified period of time
Future sum
Future cash sum equivalent to specified amount today
Future value
A future sum equivalent to a specified amount today, or to a specified cash flow. A future value is calculated by compounding at a given interest rate
Future contract
Standardized and traded on an exchange, it is an agreement between two parties to buy and sell an asset at a specified future date
Hedge
A risk-reduction technique involving the creation of a cash flow to offset an existing cash flow
Home made leverage
The duplication of the effects of corporate leverage by investors borrowing on their own account
Implicit forward rates
Interest rates related to future periods that are implied by the current yields on bonds with different terms to maturity
Imputation tax system
The system under which investors in shares can use tax credits associated with franked dividends to offset their personal income tax. The system eliminates the double taxation inherent in the classical tax system
Imputed tax credit
The credit for Australian company tax paid which, when distributed to shareholders, can be offset against their tax liability
Independent project
One that may be accepted or rejected without affecting the acceptability of another project
Information asymmetry
A situation where all relevant information is not known by all interested parties. Typically, this involves company ‗insiders‘ (managers) having more information about the company‘s prospects than ‗outsiders‘, such as shareholders
Inside information
Information about a company that is not known to the general public
Interest rate
The rate paid for borrowing or lending money
Interest rate risk
The chance that interest rates will change in the future , thereby changing the value of an asset
Intermediation
The process whereby funds are borrowed or invested through financial intermediaries. Financial intermediaries do this by taking deposits and lending to borrowers
Internal rate of return (IRR)
The discount rate that equates the present value of a project‘s net cash flows with its initial cash outlay: it is the discount rate at which the net present value is equal to zero
Internally generated funds
Funds available for investment that are generated from the company‘s operations
Inventory turnover ratio
The ratio of cost of goods sold to inventory. It measures the number of times a company‘s inventories are sold and replaced during the year, reflecting the relative liquidity of inventories
Investing institution
Accepts funds from the public and invests them in assets; includes superannuation funds. Life insurance companies and unit trusts
Investment allowance
A provision of the tax system that allows a business to reduce its taxable income by an amount equal to specified percentages of the cost of eligible new plant. This provision has been introduced periodically to stimulate investment
Issue costs
The costs of raising new capital by issuing securities. These costs include underwriting fees and legal, accounting and printing expenses incurred in preparing a prospectus or other offer documents. Also known as floatation costs
Lease
In a lease contract, the party (the lessee) is granted the right to use the property of the lessor for a specified period of time at an agreed rental
Lessee
In a lease contract, the party that using the asset
Lessor
In a lease contract, the party owns the asset
Leveraged lease
A financial lease where the lessor borrows most of the funds to acquire the asset
Limited liability
A legal concept which protects shareholders whose liability to meet a company‘s debts is limited to any amount unpaid on the shares they hold
Liquid assets
Cash and assets that are readily convertible into cash, such as bank deposits and Treasury notes
Liquidation
The process of selling a company‘s assets, either individually or as a whole. It is frequently undertaken when a company is no longer able to meet its financial obligations. The company is wound up and the proceeds of the sale of its assets are distributed to creditors and shareholders as specified in the Corporations Law
Liquidity
The speed and ease with which an asset can be converted into cash without substantially affecting its price
Liquidity management
Decisions on the composition and level of a company‘s liquid assets
London interbank offered rate (LIBOR)
A commonly used reference rate, derived daily from the interest rates at which major international banks in London will lend to each other
Long hedge
The purchase of a futures contract, to reduce risk
Margin call
The requirement to lodge additional funds when adverse movements in the
price of a contract erode the initial deposit to a level below the specified minimum level
Marginal cost of capital
The cost of a capital on an incremental project
Market model
A time series regression of an asset‘s returns on the market index, it represents the empirical analogue of the capital asset pricing model
Market portfolio
The portfolio of all risky assets, weighted according to their market capitalization
Market risk
Systematic or non-diversifiable risk. That component of return variability due to economy-wide factors
Market risk premium
The difference between the expected return on the market portfolio and the risk-free interest rate
Marking to market
The process of frequently adjusting the recorded value of an asset to its market price. In futures markets this process is carried out daily and results in adjustment to traders‘ accounts
Money market
The market in which short term debt securities are traded
Monitoring costs
Costs incurred by principals in monitoring the behaviour of their agents
Mortgage
A form of security where the lender (mortgagee) has the right to take possession of and sell property if the borrower (mortgagor) defaults
Mutually exclusive projects
Such projects are alternative investment projects, only one of which can be accepted
Net present value (NPV)
The difference between the present value of the net cash flows from an investment discounted at the required rate of return, and the initial outlay on investment
Nominal cash flow
Cash flow that include the effects of inflation
Nominal interest rate
Quoted or advertised rate of interest
Non-diversifiable risk see market risk
Normal distribution
A systematic, bell-shaped distribution which is completely characterized by two parameters, the mean (or expected value) and the standard deviation
Off-balance-sheet finance
Liabilities that are not required to be reported on a firm‘s balance sheet
Open account
An arrangement under which goods or services are sold to a customer on credit, but with no formal debt contract. Payment is due after an account is sent to the customer
Opportunity cost
The highest price or rate of return that would be provided by an alternative course of action. The opportunity cost of capital is the rate of return that could be earned on another investment with the same risk
Optimal capital structure
The capital structure which maximizes the value of a company
Option
A contract that confers the right but not the obligation to buy or sell underlying assets at a fixed price for a specified period
Option writer
The seller of an option contract
Ordinary annuity
Annuity where the first cash flow occurs at the end of the first period time
Ordinary perpetuity
Ordinary annuity where the payments continue for ever
Ordinary share
A share in the equity of a company that entitles the holder to proportion of distributed profits after any lenders and preference shareholders have been paid
Overdraft
A bank loan that permits borrowing up to a specified limit at the option of the borrower. Thus the amount owing increases or decreases, according to the borrower‘s requirements
Overnight loans
Loans which are callable, repayable or renegotiable by 11.00 a.m. the next day
Par value
The nominal or face value of a share or bond
Partnership
A business owned by two or more people acting as partners
Payback period
The time it takes for the total cash flows generated by an investment to equal the initial outlay
Perfect capital market
A frictionless market in which there are no taxes, not transaction costs, all relevant information is costlessly attributable to all participants and all participants are price takers
Perpetuity
An annuity with an infinite life
Preference share
A security that provides the holder with priority over ordinary shareholders in the receipt of dividends
Present value
Cash equivalent today of an amount to be paid or received at some future date
Price earning ratio
Share price divided by earnings per share
Primary asset ratio (PAR)
A prudential requirement of the Reserve Bank of Australia, whereby banks must maintain a minimum level of specified assets, which include liquid assets
Primary market
The market for new issues of securities where the proceeds go to the issuer of the securities
Prime rate
The interest rate at which banks lend to their most credit-worthy customers
Private issue
An issue of securities direct to chosen investors rather than the general public
Private placement
Issue of securities direct to chosen investors , rather than to the general public
Profitability index
An index used in investment evaluation, calculated by dividing the present value of the future net cash flows by the initial cash outlay
Promissory note
A security usually issued by a borrower for a term of 90, 120, or 180 days where the borrower unconditionally promises to pay the bearer a specified sum of money on an agreed date
Prospectus
A document that, among other things, provides details of the company and the terms of the issue of securities, which must be provided to potential investors by a company seeking to issue shares or other securities
Pure play
A company that operates almost entirely in only one industry or line of business
Put option
An option giving the holder the right to sell a specified asset at a specified exercise price within a specified time period
Quick ratio
Current assets minus inventories, divided by current liabilities
Real assets
Tangible assets and intangible assets used by a business
Real cash flow
A cash flow adjusted to remove the effects of inflation
Real interest rate
The interest rate, excluding the effects of inflation
Replacement assumption
Where a project is assumed to be replaced at the end of its economic life by an identical project
Required rate of return
The minimum rate of return necessary to justify undertaking an investment; also the cost of capital
Residual claim
A claim to profit or assets that remain after the entitlements of all other interested parties have been met
Residual value
The disposal value of the project‘s assets less any dismantling and removal costs associated with its termination
Restrictive covenant
A provision in a loan agreement to protect lenders interests by requiring certain action to be taken and others refrained from
Retained earnings
Earnings not distributed to shareholders as dividends
Return on assets
Earning before interest and tax, as a percentage of average assets invested
Return on equity
Earning after interest and tax , as a percentage of shareholders funds
Revolving credit facilities
Those which enable a borrower to draw on those facilities as the funds are required, provided it does not borrow more than the total agreed amount
Right
An option to purchase an additional share in a company by paying the subscription price
Right issue
An issue of new share to existing shareholders in proportion to their current shareholding
Risk
The uncertainty of future each cash flows. It is typically measured by the variance or standard deviation of the distribution of possible cash flows
Risk-adjusted discount rate
A required rate of return, adjusted for the risk associated with the project under consideration
Risk-averse investor
One who dislikes risk
Risk aversion
Dislike of risk on the part of investors. As a consequence, investors require compensation in the form of a higher expected rate of return
Risk-free interest rate
An interest rate that is certain to be paid. \in practice, the interest rate on assets such as government securities that are regarded as having no risk of default is often used as a proxy for the risk-free interest rate
Risk-neutral investor
One who neither likes nor dislikes risk
Risk premium
The difference between the expected return on a risky asset and the risk-free interest rate
Risk-seeking investor
One who prefers risk
Safety stock
Additional inventory held when demand is uncertain, to reduce the probability of a stockout
Secondary market
A market where previously issued securities are traded
Secured debt
Debt guaranteed by a pledge of assets or other collateral. In the event of default, the lender has first claim against the pledged asset
Security market line
The graphical representation of the capital asset pricing model
Sensitivity analysis
Analysis of the effect of changing one or more input variables to observe the effects on the results
Series of option
All contracts of the same class, having the same underlying asset, the same expiry date and the same exercise price
Shareholders
The owners of the company
Short hedge
The sale of a futures contract, to reduce risk
Short selling
The act of selling an asset not owned by the seller
Signaling
The process of revealing information through actions
Sole proprietorship
A business owned by one person
Spot rate
The rate for transactions for immediate delivery. In the case of foreign exchange, the spot rate is for settlement in two days
Standard deviation
Square root of the variance
Stock exchange
An organized market in which shares and other securities are traded by members of the exchange acting as brokers or principals. Traditionally such exchanges had a physical location or trading floor, where brokers met, but on many exchanges, including the Australian Stock Exchange, trading is now conducted from computer terminals in brokers‘ offices
Strike price see exercise (or strike) price
Subordinated debt
Debt which ranks below other debt in the event that a company is wound up
Subscription price
The price that must be paid to obtain a new share
Sunk cost
A cost that has already been incurred and is irrelevant to future decision making
Swap
An agreement to exchange one set of future cash flows for another. For example, in an interest rate swap, a ser of cash flows calculated using a fixed interest rate is exchanged for a set of cask flows calculated using a floating interest rate
Systematic (market-related or non-diversifiable) risk
That component of total risk that is due to economy-wide factors
Term loan
A loan requiring a schedule of repayments over a fixed period. Typically each repayment compromises principal and interest components
Term structure of interest rates
The relationship between yield and term to maturity for debt securities in the same risk class
Theoretical ex-right share price
The expected price of one share when they begin to be traded ex right
Theoretical rights price
The expected price of one right calculated on the basis of the cum-rights share price
Time value of money
A fundamental principle of finance which is that individuals prefer to receive a dollar today rather than a dollar in the future
Trade credit
Short term credit provided by suppliers of goods or services to other businesses
Trade-off theory
A theory which proposes that companies have an optimal capital structure based on a trade-off between the benefits and costs of using debt
Treasury stock
A US term for a company‘s own shares that have been repurchased and held rather than cancelled
Underwriting agreement
In a primary issue of a security, an agreement by an underwriting institution to purchase any securities not taken up by the public at the close issue
Unsubordinated debt
Debt which has not been subordinated (q.v.)
Unsystematic (diversifiable) risk
That component of total risk that is unique to the firm and may be eliminated by diversification
Utility
The amount of satisfaction that a consumer derives from consuming goods or services
Value additivity principle
The principle that present values can be summed. One application of this principle is taking the value of an entity to be equal to the sum of the value
of its component
Variance
A measure of variability; the mean of the squared deviations from the mean or expected
Weighted average cost of capital (WACC)
The average cost of capital for a company, calculated as a weighted average of the costs of the individual sources of finance
Withholding tax
In this context the tax deducted by a company from the dividend payable to a non-resident shareholder
Working capital
Current assets less current liabilities
Yield curve
A graph of yield to maturity against bond term at a given point in time
Yield to maturity
The internal rate of return on a bond
Zero coupon bond
A bond that provides only one cash flow, the payment at maturity
Acid test ratio
A ratio used to measure a company‘s immediate position or liquidity
All ordinaries Accumulation index
An index measuring the share price movements of a selection of major Australian companies listed on the Australian Stock Exchange (ASX) and incorporating the level of dividends payable as part of the growth in shareholder value of these companies
All ordinaries index
The main index of the ASX, summarizing movements in share values. This index incorporates and accounts for rises and falls in sub-indices of the niche market sectors
Arbitrage
The act of profiting from a price difference of the same security in differing markets
Ask
A seller‘s asking price for a stock
Assets
Everything owned by a company, such as plant and equipment
ASX
Australian Stock Exchange
At call
Funds that may be withdrawn at any time by an investor from an institution
At discretion
A term used to instruct a broker acting on an investor‘s behalf to buy and/or sell securities at price/s deemed reasonable by the stockbroker
At limit
The term used by investors instructing brokers not to buy or sell at a price either above or below a specified price
At market
The term used by investors to instruct brokers to buy or sell securities at the prevailing market price
At-the-money
The term referring to a put or call option form which the strike price is the same as the market price of the underlying instrument
Backdoor listing
A means of unlisted companies gaining listing status by taking control of an already listed company with few assets and market involvement. The already listed company is sometimes referred to as the ‗shell‖ Company
Bankruptcy
The financial situation in which an individual or a company is insolvent because all owned assets are insufficient to cover debt
Bear
A person who expects stock prices fall
Bear market
A falling market
Beta
A measure of share price movement in relation to the move in the market as a whole. For example, a company with a beta of 1 could be expected to follow the general movement of the market. A company with a beta of 1.5 means that a 10% move in the market could be expected to result in a 15% (10%*1.5) move in the share price of the company
Bid
The price a buyer is willing to pay
Bill of exchange
A written order which carries the name of a bank as acceptor or endorser and which required the person to whom it is addressed to pay a specified sum to the bearer of the bill on demand
Bond
A form of debt security issued by companies or government. The money received for bonds are treated as a loan by the issuing entity, and in return bond holders receive a yield or interest payment over a specified period and at either a fixed or floating rate. At maturity, bond holders receive their initial capital back. Bond prices generally fall when interest rated are rising and vice versa
Bonus issue
Additional shares generally issued on a pro-rata basis to existing shareholders. Bonus issues are a way for companies to return surplus cash back to investors
Bull
Person who believes the market will continue to go higher
Bull market
A rising market
Call option
A derivative giving the holder the right but not the obligation to purchase shares at a predetermined price before the expiry date
Capital gain
The profit made on the sale of an asset
Capital gains tax
Tax payable on capital gain
Capital loss
The financial loss on the sale of an asset
CHESS
Clearing House Electronic Sub register System. This systems an electronic record of shareholders. Share ownership is transferred electronically via CHESS when stocks are bought and sold
Company risk
The financial risk associated with a company, its management and its area of business operations
Consumer Price Index (CPI)
The main indicator of inflationary forces in the Australian economy. It is based on the aggregate price that consumers have to pay for a number of goods and services deemed as a ‗weighted representative basket‘ of goods applicable to the majority of consumers. The CPI has become the accepted measure of the cost of living over time
Contract note
A confirmation document detailing the nature of the transaction, price, stamp duty and brokerage fees
Contributing shares
Shares that are not fully paid. A company can call for all outstanding amounts on these shares to be paid. Shareholders may let these shares lapse rather than paying any outstanding amount
Conversion ratio
The ratio used to determine the number of ordinary shares that a convertible note or convertible bond can be exchanged into when it is exercised
Convertible note
A hybrid security that is essentially a loan made by an investor to a company. The investor receives a fixed yield in return on the investment for a stipulated period of time. At maturity the notes can be exercised into ordinary shares of the company at a pre-determined conversion price, or else the note holder can elect to convert the security into cash
Credit risk
The risk related to counter party failure
Current assets
Company assets that are expected to be [aid or sold within a year
Current liabilities
Company debts that are payable within a year
Current ratio
A sum used to determine the immediate fundamental position of a company
by dividing its current assets by its current liabilities
Cum dividend
The period immediately preceding the payment of a dividend in a listed company
Debenture
A loan made to a company for a fixed period of time at a fixed rate of interest
Debt-to-equity ratio
Debt as a percentage of shareholders‘ equity(borrowing8100=shareholders‘ equity)
Deflation
The stage at which the money supply is contracting to such an extent that one unit of currency purchases more goods and services than it did previously
Delta
An indicator showing the percentage that a derivative is expected to move resulting from share price movements in the underlying stock. For example, a delta of 10% means that if the share goes up 20c then the derivative should go up by 2c or 10%. The delta of warrants and options will change depending on the volatility of the stock and whether it is in-, at-, or out-of-the-money
Derivative
A financial instrument of which the price is based upon an underlying instrument such as a listed company‘ shares. It is valid for only a set period of time and has a strike price (see also call option and put option)
Dividend
Monetary distributions made by the company to shareholders (see also dividend reinvestment plan)
Dividend payout ratio
The value of dividends paid out to shareholders as a ratio of net income or profit made by the company
Dividend reinvestment plan(DRP)
A plan in which investors can elect to receive their dividend in the form of additional shares in the company rather than as a monetary dividend. See Chapter 4 to see how this is reflected on a CHESS statement. The monetary value of shares received via a DRP is regarded as taxable income in the same way that a monetary dividend paid out to shareholders is regarded
Dividend yield
The rate of return an investor could expect to receive on their investment in a company, expressed as a percentage of the share price at the time of the shares were purchased. A dividend yield is derived by dividing the cash dividend by the share price
Dog
A colloquial term for an underperforming stock
Dollar cost averaging
The method of investing by purchasing stocks in selected companies at periodic intervals and generally with fixed dollar amounts. Stocks are bought at these regular intervals regardless of the prevailing market conditions. The overall purchase price is determined by the average price paid for the stock
Due diligence
Investigation conducted by investors, companies and fund managers as part of the process of gaining a further understanding of a company and its operations in advance of either investing in it or attempting to gain control of it
Earning per share
The net profit divided by the total number of shares in the company
Earning before interest and tax (EBIT)
The profit of a company‘s operations before taking into account any interest payable or receivable, and before any tax is deducted from the profit
Ex dividend
The period immediately after the recorded date at which shareholders are entitled to receive the current dividend payable
Fixed assets
Items such as buildings, furniture, membership as long-term leases. Typically, these items are not intended for sale or disposal within a year
Floor broker
A member of an exchange who trades for his or her own personal account.
Franked dividend
A dividend that carries the right to an imputation credit
Fundamental analysis
An approach to investing that investigates an ongoing business concern by taking into consideration the company‘s balance sheet, profit and loss statement, the broader implications of the economic cycle, the ability of the company to continue improving its return on shareholders‘ equity, and its ability to remain viable.
Gamma
Measures the expected change in the delta given a change in the underlying instrument
Good-till-cancelled
The term used to instruct a stockbroker that they are to leave the order open until it is executed or cancelled
Index funds
Managed investment vehicles of which their portfolio typically mirrors a specified benchmark or index such as the ASX100 or ASX200. many index fund managers adopt a buy-and-hold approach
Initial public offering
The initial offer of shares in a company to retail and institutional investors on the primary market, in advance of the company‘s listing on the secondary market
Intangible assets
Goodwill, intellectual property, patents, trademarks and other similar company assets. The brand name Coca-Cola and its mysterious formula is perhaps the most famous example of an intangible asset
Inverted yield curve
The market condition when short-term interest rates are higher than long-term interest rates
JV
The official abbreviation for ‗joint venture‘, a term typically found in mining circles where two companies remain separate entities but combine workforce, management and equipment to conduct mining activity on a project
Liabilities
Debts to be repaid by a company, such as loans
Managed investments
Investment vehicles which pool together many investors funds and which are managed on the investors‘ behalf in accordance with the pre-determined objectives of the fund
Managed investment act 1998
An act introduced in 1998 as a new regulatory and accountability regime for the operation of managed investment. It replaced a system that differentiated between manager and trustee of the managed entity. The Act combines the functions of the manager and trustee under the term ‗Responsible Entity‘
`margin call
A demand made on borrowers by lenders for more funds in either cash and/or securities to restore the pre-determined margin loan ratio
MER
Every managed fund draws a management fee from its participants, typically called the MER. It is expressed as a percentage of the total funds under management
MSCI Index
The Morgan Stanley Capital International Indices are performance benchmarks for managed investments and index funds in Europe, \north
America, Australia and Asia. These indices comprise the largest companies from around the world
Prospectus
A document issued by a company intending to raise money from the public. It outlines various items, such as business interests, the amount sought from the public, and the company‘s estimates for profit/loss immediately after listing. The main purpose of such a document is to ensure that investors are able to make informed investment decisions regarding the prospects of the company
Qualitative analysis
A system of evaluating a company by using subjective factors such as goodwill, brand names(Coca-Cola, for example), management and company strategy and direction, rather than the hard and fast tangible assets as they appear on a balance sheet
Quantitative analysis
The ‗objective‘ method of evaluating company value based on tangible assets and mathematical formulas; using balance sheet numbers of determine a company‘s P/E ratio, dividend yield, EPS and NTA
Rally
The term given to a relatively strong rise in the market or an individual share
Redemption
The term used when an investor withdraws money from managed fund. It is the act of redeeming units held in a trust for cash
Return on equity (ROE)
A ratio measuring after-tax profit as a percentage of shareholders‘ equity.
After-tax profit/shareholders‘ equity*100
Rights issue
One way a company can raise further capital is to ask existing shareholders for additional funds via a rights issue. These are two types of tights issue: ‗renounceable‘------ which can be traded on the secondry market and ‗non-renounceable‘-----which cannot be traded on the secondary market, but has to be taken up by the existing shareholders or allowed to lapse upon expiry. The shares are issued in the company on a pro rata basis. For example, when a tights issue is registered on a one-for-four basis it means that for every four existing shares a shareholder currently holds they are entitled to buy one more in the rights issue. rights issues are registered with an expiry date before existing shareholder lose the opportunity to ‗take up‘ their ‗rights‘
Securities
Shares, debentures and bonds are example of securities
Shareholders‘ equity
What is actually owned by company shareholders. In simple terms it is the company‘s assets minus its liabilities
Stock Exchange Automated Trading System (SEATS)
The ASX computer system that provides brokers with immediate access to the market from any location
Trustee
The trustee of a unit trust holds trust assets on behalf of all the unit holders (see also Management Investment Act 1998)
Underwriter
The person or organization, such as stockbroking firm, which handles the new issue of securities. The underwriter agrees to purchase any unsold securities thus guaranteeing full subscription to the issue. Listed securities need not be underwritten before listing
Unit trust
A type of managed fund. In a unit trust, investors are issued units instead of shares. The value of each unit changes constantly based upon the fundamental and sentimental value placed on them. A trust does not pay tax
as such. All taxable income is distributed to the unit holders or investors. These people pay tax on their individual distribution at their own marginal tax rate. Capital gains tax is payable on any and all capital gains upon the sale of units in a unit trust
Unlisted security
A security in a company that is not listed on the ASX
Base
A chart pattern in which a stock traces specific price-and-volume action before it begins a major rally to new highs and huge profits for those who got shares at the correct buy point. Studies by IBD founder William O‘Neil and his research associates or the base-performing stocks from 1953 to 2003 show that these stocks typically from a base before launching the biggest phase of their price advance.
In a typical base, a stock makes a relatively mild decline in price or moves sideways for at least seven weeks (at least five weeks for a flat base) to as much as one year or more. Sound bases have a prior price uptrend of at least 30%. The most common base patterns are the cup with handle, cup without a handle, double bottom, flat base, base on base, and saucer.
For more information, visit the IBD \learning Center at www.investors.com and read ―New Price High Mean New Opportunities‖ and ―Chart Patterns Help You Spot The Right Time To Buy‖ in Course I. Also read pages 122 to 164 of ―How to Make Money in Stocks,‖ Third Edition, by William O‘Neil.
Break out
The moment when a high-quality stock surges out of a base on increased and usually heavy volume and surpasses the pivot point within a base. A strong breakout results in the stock‘s hitting new highs for a period of weeks or months, even years. For example, if a stock‘s pivot point is 33.10, the stock is breaking out when it rises to 33.10 and continues to go higher. (see pivot point.)
For more information, read pages 122 to 144 of ―How to Make Money in Stocks,‖ Third Edition, by William O‘Neil. Also, read lesson 9 (pages 43 to 49), ―How to Buy at Just the Right moment,‖ in ―24 Essential Lessons for Investment Success‖ by William O‘Neil.
CAN SLIMTM
The IBD acronym for the seven common characteristics all great performing stocks have before they make their biggest gains. You can significantly reduce your risk and increase returns by using the CAN SLIMTM investment research tool as a fact-based performance checklist to evaluate a stock before you buy.
C = Current earning per share, which should be up 25% or more in the last quarter versus the same period a year ago and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters.
A = annual earning, which should be up 25% or more in the last three years. Annual return on equity (net income divided by average shareholders‘ equity over the past two years) should be 17% or more, or the annual pretax profit margin should be 17% or more.
N = new product or service. A company should have a new product or service that‘s innovative and fueling earnings growth. The stock should be
emerging from a proper chart pattern and about to make a new high in price.
S = supply and demand. The number of shares outstanding can be large or small, but trading volume should be big at key points as the stock price increases.
L = Leader or laggard? Buy the leading stock in a leading industry. A stock‘s Relative Price Strength Rating should be 80 or higher. Its IBD Composite Rating should preferably be 90 or higher.
I = institutional sponsorship, which should be increasing, invest in stocks showing an increasing number of mutual fund owners in recent quarters and at least one or two of the better-performing growth-oriented mutual funds owning the stock. IBD‘s Accumulation/Distribution Rating gauges mutual fund activity in a stock.
M = the market indexes. The Dow, S&P 500 and Nasdaq should be in confirmed uptrend since three out of four stocks follow the market‘s overall trend.
Chart
A visual display of a stock‘s price-and-volume action. On investors.com, IBD provides two kinds of charts: (1) a daily chart, which shows a stock‘s intraday high, low and close and the share volume for each trading day; and (2) a weekly chart showing a weekly range of prices and the weekly close, as well as volume that week. For the days and weeks that a stock closes up in price, IBD charts paint both the price-range and volume bars in blue. Down days and down weeks and the corresponding volume bars are shown in red.
Composite Rating
An IBD SmartSelect Rating that combines all five IBD SmartSelect Ratings: EPS, RS, SMR, Industry Group RS, and Accumulation/Distribution. Of the five, EPS and RS get the most weight. The stock‘s price relative to its 52-week high is also factored in. Ratings range from 1 to 99, with 99 the best.
Cup-with-handle base
A commonly seen chart pattern among the best growth stocks just before such a stock begins its huge price run. From a conceptual point of view, it is primarily a product of professional investor opinion and psychology plus the everyday forces of supply and demand among millions of investors.
Key criteria of a good cup-and-handle base are following:
At least seven weeks in length.
A decline, frequently for five to seven weeks, that forms the left side of the cup and, in time, a rally off the low of the base to create the right side of the cup
Decline from the highest price in the base (simply known as ―the high‖) to the lowest price (or ―the bottom‖) running from 13% to 15% to as much as 40% during a bull market.
Large or increasing spikes in volume as the stock builds the cup‘s right side.
A downward-sloping handle (when measures along the lows of the price-range bars in the handle area). The handle forms in the upper half of the cup‘s overall price structure and must decline less in
price in proportion to the decline in the base. Taken together, the price action from the initial decline to the handle resembles the silhouette of a teacup viewed from its side.
For more information and actual examples of cup-with-handle patterns, read pages 124 to 131 and 154 to 161 of ―How to Make Money in Stocks,‖ third edition by William O‘Neil. IBD subscribers can access the IBD Archives at www.investors.com and read past ―Investor‘s Corner‖ columns explaining this important chart pattern, including ―Many Top Stocks Emerge From A Cup-With-Handle Base‖ (June 4,2004), ― Some Cup Bases Last For Months, But Can Be Well Worth The Wait‖ (June 7, 2004), and the columns published on these dates in 2003: May 14, 15, 23: Oct. 7: and Dec. 2, 5, 15.
DatagraphTM
A unique graphic format designed by William O‘Neil, founder of Investor’s Business Daily, to collect and analyze stock-related data needed to discover the biggest winners in the stock market. Each stock Datagraph is 10 inches long and 7.5 inches wide and contains 126 key pieces of data, 98 of which are related to company‘s fundamentals, and 28 are related to the stock‘s technical action. They include earnings per share, pretax margins and return on equity in each of the past nine years, earnings are revenue figures and year-over-year changes in the past 14 quarters, and the number of mutual funds that own the shares and total shares owned in the past 14 quarters. The Datagraphs are used by more than 400 of the top institutional investors around the world, including Merrill Lynch, J> P> Morgan, SwissRE, Wachovia Bank and the United Nations.
Distribution Day
The day when at least one of the major stock indexes (namely, the Nasdaq Composite, S&P 500, Dow) falls at least 0.5% on heavier trading volume than the previous session. The NYSE daily volume is monitored for changes in the S&P 500 and Dow. A series of three to five distribution days in just two to four weeks can signal the market is topping and that most stocks are likely headed for a decline. This is the time to consider selling some shares and keep watching for key sell signals by individual stocks.
For more information on distribution days, read pages 1 to 16 in ―The Successful Investor‖ by William O‘Neil and the ―Big Picture‖ column in IBD on daily basis.
Double-bottom base
A key chart pattern that many of the greatest stocks carve before breaking out to new highs and huge price gains. One a daily or weekly chart, the stock‘s lows resemble a W shape. Examples of big winners producing the double-bottom base include American \power Conversion (1989-90), Sun Microsystems (1999), Apollo Group (2000) and eBay (2002).
Key criteria include the following:
Two sell-offs, each over a few weeks‘ time, the second sell-off usually undercutting the first low.
A middle peak formed by an interim rebound in between the two sell-offs that fails to mark a new 52-week price high.
A decline from the base‘s high to low of anywhere from 12% to as much as 30% during a bull market.
The pivot point, or ideal buy point, is when the rally off the second bottom surpasses the peak of the interim rebound (or the middle part of the base) by at least 10 cents. In some cases, a handle forms after the stock makes a second low and then rallies back in price. Add 10 cents to the highest price within the handle to determine the pivot point, or ideal buy point.
For more information, read pages 132 to 133 and 162 to 163 of ―How to Make Money in Stocks, ―third edition, by William O‘Neil. Also, IBD subscribers can access ―Investor‘s Corner‖ columns on the double-bottom base at IBD Archives on www. Investors.com, including ―Some Outstanding Stocks Form A Double Bottom In A Weak Market,‖ (June 14, 2004), ― After A Healthy Rally, Snack Firm shot Out Of Double-Bottom Base‖(Dec. 8, 2003) and ―Cup, Saucer And Double-Bottom Patterns Often Reveal Symmetry‖ (Nov. 3, 2003).
Earning Per Share Rating (or EPS Rating)
A proprietary IBD rating that compares a company‘s last two quarters and last 3 to 5 years of earnings per share growth and stability with that of all other public companies. Ratings range from 1 to 99, with 99 the best. A 95 rating means a company‘s earning growth is superior to 95% off all stocks in the William O‘Neil + Co. Database.
An IBD study of the 95 top performing small-and mid-cap stocks from 1994 to 1997 found that the median EPS Rating at the beginning of these stocks‘ big rallies was 79. In the same study, the median EPS Rating among 25 top performing large-cap stocks (market cap of roughly $4 billion and higher) was 80.
Flat base
A chart pattern some great stocks from before breaking out and going on a run of new highs. The pattern must be a minimum of five weeks in length, and it does not fall more than 15% from the base‘s peak to trough. The stock‘s flat-looking sideways action indicates that institutional investors are not eager to sell shares. It often shows up when the major market indexes are struggling to move higher.
For example of the flat base, read pages 133 to 134 in ― How to Make Money in Stocks,‖ Third Edition, by William O‘Neil. Also, IBD subscribers can access |Investor‘s Corner‖ columns on the flat base at IBD Archives on www.investors.com, including ―Flat-Base Patterns Can Lead To Exciting Stock breakouts‖ (June 9, 2004) and ―Flat Bases Help Solid Stocks Further Inflate Their Gains‖ (May 16, 2003).
Follow-through
A confirmation that the general market has begun a potentially significant new uptrend. This uptrend can be seen specifically when at least one major index (namely, the Nasdaq composite, S&P 500, Dow) rises about 1.7% or more on heavier volume than the previous session, usually in the 4th to 10th day of a new rally is attempt. Not all follow-throughs guarantee that a major new rally is taking place, but every major market bottom since 1900 has featured one.
For more information on follow-through days, read pages 1 to 16 in ―The Successful Investor‖ by William O‘Neil and the ―Big Picture‖ column in IBD on a daily basis. Also, IBD subscribers can access ―Investor‘s Corner‖
columns on the Follow-Through by going to IBD Archives at investors.com, including ―Follow _through On Oct. 15,2002, Launched The Latest Bull Market‖ (Dec.22, 2003) and ―March 17 Follow-Through Launched A Fleet Of Breakouts‖ (Dec. 24, 2003).
Handle
A period of stock action, generally between one week and up to six to eight weeks, that occurs toward the end of a cup, double-bottom or saucer pattern. In the handle, the stock trades in a tight price range near its 52-week high and drifts downward along the lows of its price-range bars on quiet volume.
A handle forms as nervous, disgruntled or uncommitted shareholders sell their shares and exit the stock. Those shares go into the hands of sturdier investors who are committed to holding the stock for the long term. The handle-forming process normally creates a shakeout of some weaker holders and clears the decks for a new rally by the stock. It also defines the correct buy point, or the pivot point. Add 10 cents to the highest price in the handle to get most pivot points.
For more information, read pages 124 to 129 of How to Make Money in Stocks,‖ Third Edition , by William O‘Neil, as well as pages 45 to 49 in ―24 Essential Lessons for Investment Success,‖ also by William O‘ Neil. Also, IBD subscribers can access ― Investor‘s Corner‖ columns on proper and improper handles at IBD Archives including ―Handle Should Slant Downward‖ (OCT. 31, 2002), ―Some Handles Feature Shakeouts‖ (Nov. 5, 2002), ―Many Great Stocks Form A Handle Before Breaking Out‖ (March 19, 2003) and ―Solid Handles Form in The Upper Half Of A Good Base‖ (March 21, 2003).
Pivot point
The price a stock must go through in order to stage a sound breakout. When a stock goes through the pivot, it indicates an unusually high level of demand for shares by institutional and individual investors. This strong demand fuels a great stock‘s run to new high and double to triple –digit percentage gains as long as the stock base was formed in a sound and correct way. The stock‘s fundamentals (sales growth, earnings growth, return on equity and margins) must also be strong and among the best in the industry.
The pivot point for the base patterns are the following:
Cup with handle: 10 cents above the highest price within the handle.
Cup without handle: In general, 10 cents above the highest price on the cup‘s left side.
Double bottom: 10 cents above the middle peak. If the double-bottom base also has a handle, then the pivot is 10 cents above the handle‘s high.
Flat base: 10 cents above the highest price in the base.
Saucer with handle: 10 cents above the handle‘s high.
For more information, go through Course 1 in the IBD Learning Center at www.investors.com. Also read Chapter 12 in ― How to Make Money in Stocks,‖ Third Edition , by William O‘Neil.
Relative Price Strength Rating (or RS Rating)
A proprietary IBD rating that compares a stock‘s price change in the past 12 months with all other stocks in the William O‘Neil + Co. Database.
Ratings range from 1 to 99, with 99 the best. A 95 RS Rating means a stock has outperformed 95 % of all stocks over the past 12 months.
Generally, the strongest stocks in the market already have an RS Rating of at least 80 before they make the biggest part of their upward price moves. A study of the 95 top performing small and mid-cap stocks from 1994 to 1997 found that the median RS Rating at the begging of these stocks‘ big rallies was 84. In the same study, the median EPS Rating among 25 top performing large-cap stocks (market cap of roughly $4 billion and higher) was 73.
Relative strength line (or RS line)
A line that plots a stock‘s price performance versus that of the S&P 500 large-cap index. When the line rises, the stock is outperforming the market. When if falls, the stock is underperforming. The RS line can be found on all daily and weekly charts in Investor’s Business Daily’s ―Daily Online‖ and investors.com. Studies of the biggest stock market winners from 1953 to 2001 show that the RS line climbs to new high ground before or at the same time a great stock breaks out of a solid base and vaults to new price highs.
Saucer base
A chart pattern seen among some of the best stock market winners. It resembles the cup with handle, but it tends to be at least several months to over a year in length. The base‘s slow, steady decline and slow rise within the base resembles the silhouette of a saucer viewed from the side. Example of stocks that formed saucer bases include Bank of America (BOA) from June 1994 to December 1995, Coca-Cola (KO) from June 1992 to March 1995 and Carbo Ceramics (CRR) from April2002 to December 2003.
For more information on the saucer, read the ―Investor‘s Corner‖ column ―Saucer Base Wears Out Shareholders Before The Breakout‖ (June 11, 2004) and other columns on the saucer, available to IBD subscribers in the IBD Archives on www.investors.com.
Shakeout + 3
A chart pattern seen among some of the best stock market winners, including Cisco Systems in October 1990. For a stock whose price is trading in the $20 to $30 range, a shakeout + 3 begins when it first falls to a low of , say, $22. After rebounding in price for a few weeks, the stock then suffers a second sell-off and undercuts the first low. If the market is in the early stages of a new rally, watch to see if the stock rebounds and rises $3 above the first low of $22 level is the pivot point, or ideal buy point.
Amex
The American Stock Exchange, located in New York City. Its lines of business include stocks, stock options, and exchange-traded funds (ETFs). This exchange, which offers many products through its trading floor, is the only exchange that is not wholly electronic that announced intention to offer security futures. As of press time, it has not released contract specifications or a list of possible security futures products.
Arbitrage
The simultaneous purchase of an asset in one market and the sale of a comparable asset in another market in order to profit from discrepancies in usual price relationships. See also spread.
Ask price
The price at which a seller will sell.
Associated person (AP)
One who solicits orders, customers, or customer funds for a futures commission merchant, an introducing broker a commodity trading advisor,
or a commodity pool operator and who is registered with the Commodity Futures Trading Commission.
At the money
An option whose strike price equals, or approximately equals, the current market price of the underlying asset.
Back month
Traded contract month of a futures contract that is furthest from expiration. Also referred to as deferred months. See also contract month, front month.
Basis
The difference between the price of the futures contract and the cash or spot price. (Unless otherwise specified, the price of the nearest contract month is used to calculate basis.)
Bear market/bear/bearish
A market in which prices are declining. A market participant who expects prices to move lower is called a bear. An event is considered bearish if it is expected to produce lower prices.
Best execution
A requirement that broker and others execute customer orders at the best available price in the shortest amount of time.
Bid
An offer to buy a financial instrument at a stated price.
Bid/ask spread
The price difference between the current highest offer to buy and the current lowest offer to sell.
Break
A quick and steep price decline.
Breakaway gap
A gap in prices that indicates the end of a trend and the beginning of a critical market move.
Broad-based index futures
Futures contracts whose underlying asset is a broad-based index generally consisting of ten or more securities and does not fall under the definition of a narrow-based index. They are not considered to be security futures products, so they are regulated soley by the Commodity Futures Trading Commission. See also Stock index, Narrow-based index futures.
Broker
A person who is paid a fee or commission for acting as an agent in making contracts or sales. More specifically, the term may refer to (1) a floor broker, who executes orders on the trading floor or an exchange, (2) an associated person account executive, who deals with customers and their orders at a broker/dealer, futures commission merchant, or introducing broker, or (3) a broker/dealer, futures commission merchant, or introducing broker.
Broker/dealer (B/D)
An individual or firm, paid a fee or commission, that acts as an agent between buyer and seller, and may also be in the business of buying and selling securities for his or her own or the firm‘s account.
Brokerage fee
The charge for executing a transaction. The charge may be per transaction or a percentage of the total value of the transaction. Also known as a commission fee.
Browser-based systems
Trading systems that provide a series of web pages that allow you to enter orders, view working orders, get quotes, and so on.
Bull market/bull/bullish
A market in which prices are rising. A market participant who expects prices to move higher is called a bull. An event is considered bullish if it is expected to move prices higher.
Buy or sell on open or close
To buy or sell at the beginning or end of the trading day.
Calendar spread
The simultaneous purchases of one contract month and sale of another contract month for the same instrument on the same exchange.
Call (option)
In options, a contract that gives a buyer the right, but not the obligation, to purchase a particular futures contract or security at a stated price on or before a stated date. Buyers of call options generally hope to profit from an increase in the price of the underlying asset.
Carrying charges
Costs incurred in holding a physical commodity or financial instrument: these generally include interest, insurance, and shortage.
Cash commodity
The physical commodity, as distinguished from futures contracts. Also known as actuals.
Cash settlement
The receipt of money instead of the underlying commodity to fulfill the delivery requirements of the futures contract. The amount of money is based on the daily settlement price of the underlying commodity.
Charting
In technical analysis, the use of charts and graphs to plot price trends, average movements of price and volume, and open interest. See technical analysis.
Clearing
The method by which trades are reviewed for accuracy. After trades are validated, the clearinghouse or association becomes the buyer to each seller and the seller to each buyer. Through this procedure, a clearinghouse keeps records of all trades and resulting positions, ensures performance on those positions, and facilitates the daily passthrough of profits and losses via a mark-to-market process.
Clearing member
A member of a clearinghouse or an association. All trades of a nonclearing member must be settled through a clearing member.
Clearinghouse
An agency connected with an exchange through which all futures contracts are made, offset, and fulfilled by physical delivery or cash settlement.
Close
The end of the trading session designated by the exchange, during which all transactions are considered to be made ―at the close‖
Commission
The fee a broker charges a customer for completion of a certain duty, such as the buying or selling of futures contracts.
Commodity
A unit of trade or commerce, services, or tights on which futures contracts may be traded. Commodities may include, but are not limited to, agricultural products, financial instruments, foreign currencies, indexes, and metals.
Commodity exchange act
The federal act that provides for federal regulation of futures trading and is the mandate for the Commodity Futures Trading Commission.
Commodity Futures Modernization Act (CFMA)
The act, passed in December 2000, that amends the Commodity Exchange Act and legalizes the trading of security futures products, including single stock futures.
Commodity Futures Trading Commission (CFTC)
A commission set up by Congress through the Commodity Exchange Act to oversee the futures industry.
Commodity pool
A venture in which assets contributed by a number of persons are collected for the purpose of trading futures contracts and/or options on futures. Not the same as a joint account.
Commodity pool operator (CPO)
An individual or firm, generally required to be registered with the commodity Futures Trading Commission, that operates or solicits funds, securities, or property for a commodity pool. According to the NFA,
registration is required unless the total gross capital contributions to all pools are less than $200,000 and there are no more than 15 participants in any one pool.
Commodity trading adviser (CTA)
An individual or firm that trades for commodity pools and/or individual clients. A CTA may also issue analysis or reports on commodities and advise others on trading in commodity futures, options, or leverage contracts.
Common stock
A class of securities representing ownership in a company whose value may appreciate or depreciate. Owners of this type of stock may also receive dividends, but only after preferred stockholders, if any, receive them. See preferred stock.
Consolidation
A break in trading activity during which prices move sideways. Traders often assess their positions during periods of consolidation.
Contract
A term describing a unit of trading for a commodity.
Contract month
The month in which a contract is to be settled, either physically or monetarily, in accordance with the futures contract.
Contract size
The quantity of the underlying asset represented by a futures contract.
Corporate actions/events
Changes in the structure of a corporation or in the price and/or quantity or a corporation‘s stock. These changes may be caused by stock splits, stock consolidation, special dividends, and spin-offs. Exchanges adjust security futures contracts to reflect these changes.
Cover
See offset.
Current delivery (month)
The futures contract that will expire and must be settled during the current month: also called spot month.
Customer segregated funds
See segregated account.
Day order
An order that expires automatically at the end of the trading session on the day it was entered if it is not executed.
Day traders
Traders who establish and liquidate positions in one trading day, leaving then with no open positions. They are generally members of the exchange and active on the trading floor.
Debt balance
The state of a customer‘s account when the trading losses exceed the amount of equity.
Default
In futures markets, the failure to carry out a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.
Deferred month
The more distant delivery months in which futures trading is taking place, as distinguished from the nearby delivery months.
Delivery
In settlement of a futures contract, the tender and receipt of an actual commodity or other negotiable instrument covering that commodity.
Delivery month
The clearing month during which a futures contract may be settled and becomes deliverable. See contract month.
Delivery notice
A clearinghouse notice of a seller‘s intention to deliver the physical commodity against a short futures position.
Delivery price
The official settlement price of the trading session during which the buyer of futures contracts receives delivery notice of the seller‘s intention to deliver and the price the buyer must pay for the underlying stock on which
it is based.
Discount
(1) A description of the futures contract price when it is less than the cash price of the underlying asset. For example, this single stock futures contract trades at a discount to its underlying stock. See also Parity, Premium. (2) A reduction in the expected price of a financial instrument produced by various factors.
Discretionary account
An arrangement by which an account holder authorizes another person, often a broker, to make buying and selling decisions without notification to the holder: often referred to as a managed account or controlled account.
Dividend
A corporation‘s payment to its stockholders.
Downtick
A situation in which a financial instrument sells for less than its previous transaction price. In securities markets, the ―uptick rule‖ currently prevents the short sale of stock on a downtick. See Uptick.
Downtrend
A price trend involving a series of lower highs and lower lows.
Electronic trading
Computerized trading through an automated order entry and matching system.
Equity
(1) in a futures account, the dollar value if all open positions were offset at the current market price. (2) in a securities margin account, the excess of the market value of securities over debit balances. (3) the ownership interest of a company‘s stockholders.
Euronext.liffe
The derivatives business of Euronext, which also trades universal stock futures, the exchange‘s name for single stock futures.
Exchange
An association engaged in the business of buying and selling financial instruments.
Exchange-traded fund (ETF)
A basket of securities designed to track an index while trading like a stock. For example, OneChicago‘s DIAMONDS contract is a future on the DIAMONDS ETF, which tracks the Dow Jones Industrial Average.
Exercise
In options trading, choosing to accept the underlying asset at the strike price.
Exercise price
The price at which the buyer of a call (put) option may choose to exercise his or her right to buy (sell) the underlying asset. Also called strike price.
Expiration cycle
A term describing the quarterly expiration dates applicable to derivatives. Three commonly used cycles are January/April/October, February/May/August/November, and March/June/September/December.
Expiration date
(1) The last date on which an option may be exercised. (2) A term used for the last trading day of a futures contract, although futures contracts technically do not expire because they must be either offset or performed.
Fair market value
For single stock futures, the theoretical value of the futures contract on a stock. In theory, the price of a single stock futures contract should equal the value of the underlying stock plus the interest rate less dividends, calculated over the life of the futures contract.
Fibonacci number or sequence of numbers
A sequence of numbers identified by the Italian mathematician Leonardo de Pice in the thirteen century. It is the mathematical basis of the Elliott wave theory, where the first two numbers of the sequence are 0 and 1 and each successive number is the sum of the previous two numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233 . . . ).
Fill or kill order (FOK)
A limit order on which sellers can notify buyers, via the clearinghouse, of their intention to deliver cash commodities against futures contracts and on which buyers can receive notification.
First notice day
The first day on which sellers can notify buyers, via the clearinghouse, of their intention to deliver cash commodities against futures contracts and on which buyers can receive notification.
Floor broker
One who executes orders on an exchange‘s trading floor for someone else.
Floor trader
Exchange members who are personally present on the trading floors to make trades for themselves and their customers. Also referred to as scalpers or locals.
Forward contract
A privately negotiated agreement, common in many industries, to complete a transaction time in the future, at a price often negotiated in the present.
Forward curve
The price of a series of futures contracts throughout several months.
Front month
The traded contract month of a futures contract that is closest to maturity. Also referred to as the nearby month or nearby. See also Back months and Contract month.
Fundamental analysis
The examination of the underlying factors that will affect the supply and demand of and demand for the underlying assets. See also technical analysis.
Futures commission merchant (FCM)
An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to pay for such orders. The individual or organization must be registered with the Commodity Futures Trading Commission.
Futures contract
A standardized agreement to buy or sell a specified quantity of a commodity or financial instrument during a specified month in the future that can be traded only by public auction on designated exchanges.
Gap
A price range on a chart where no trading takes place from one day to the next.
Good till canceled
An order that stands until it is cancelled or filled or until the contract expires.
Guided account
An account that is part of a program directed by a commodity trading adviser (CTA) or futures commission merchant (FCM). The CTA or FCM advises the customer to enter and/or liquidate specific positions, but the customer must give final approval to enter the order. These programs generally require a minimum initial investment and may include a trading strategy that will draw on only a part of the investment at any given time.
Head and shoulders
A chart formation representing three successive rallies and reactions, where the second rally, or head, reaches a point than the other two rallies. It usually indicates a major market reversal.
Hedging
The sale (purchase) of futures contracts in anticipation of future sales (purchases) of the underlying asset as a protection against possible price declines (increases).
Index
A group of securities whose calculated price is intended to represent economic trends. An index may be designed to track changes in the overall economy, the stock market, or a sector of the stock market, such as pharmaceuticals or technology.
Indexation
An investment strategy designed to mimic the price movement of an index or of a particular basket of securities.
Initial margin
A customer‘s funds required at the time a futures position is established or an option is sold to ensure that the customer carries out the contractual obligations. Margin in futures is not a down payment, as it is in securities. See also Margin.
In the money
A call option with a strike price below, or a put option with a strike price above, the current market price of the underlying asset.
Intrinsic value
The value of an option if it were to expire immediately.
Introducing broker (IB)
A firm or individual that solicits and accepts commodity futures orders from customers but does not accept money or other assets from customers. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through a FCM on a fully disclosed basis.
Inverted curve
A market state in which the price of a security futures contract is below the price of the security, or at a discount to the security.
Inverted market
A futures market in which the nearby month sell at a premium to the more distant months: generally occurs in a market where there is a supply shortage.
Island Futures Exchange (Recently renamed INET Futures Exchange
An affiliate of INET, that has been approved to offer security futures products. As of press time the exchange had not released contract specifications or a list of security futures products to be offered.
Lagging indicators
Market indicators that confirm or deny the trend indicated by the leading indicators. Also referred to as concurrent indicators.
Last trading day
The day on which trading or the current delivery month ends.
Leading indicators
Major market indicators that suggest the economic state for the coming months. Some leading indicators include index of consumer expectations, change in material prices, prices of stocks, and change in the money supply.
Leverage
A characteristic of a financial instrument that allows an investor to establish a position with funds that are less than the value of the financial instrument.
Life of contract
The time during which a contract trades, from the day it begins trading to the expiration of trading in the delivery month.
Limit
See Position limit, Price limit, Reporting limit, Variable limit.
Limit move
The maximum price movement allowed during one trading session, as designed by the rules of a contract market.
Limit order
An order in which the customer sets a limit on either price, time of execution, or both, unlike a market order, which should be filled at the most favorable price as soon as possible.
Liquidation
The purchase or sale of futures contracts, of the same quantity and delivery month as contracts sold or purchased earlier, to offset the obligation to make or take delivery.
Liquidity
A characteristic of a market in which buying and selling can be accomplished without dramatically affecting prices and in which bid/offer price spreads are narrow.
Long
An individual who has purchased a financial instrument, in contrast to a short, who has sold a financial instrument.
Long hedge
The act of buying futures contracts to protect against possible price increases in the underlying asset. See also Hedging.
Lot
A term for one futures contract. Also describes a number of futures contracts---- for example, a 5-lot purchase of Microsoft single stock futures contracts.
Maintenance margin
The amount of money that must be maintained in an account while a futures position is open. If the equity in a customer‘s account drops under the maintenance margin level, the broker must issue a margin call to the customer, asking for money to restore the customer‘s equity in the account to the required minimum level. See also Margin.
Margin
(1) In the futures industry, an amount of money deposited by futures traders to ensure performance against the contract: it is not a down payment. Also referred to as a performance bond. (2) In the securities industry, a deposit made to a broker/dealer by a securities trader to buy or sell securities. When traders are buying securities, the margin is considered a down payment.
Margin call
A call from a brokerage firm to a customer asking the customer to deposit additional funds so that the equity returns to the minimum level required by exchange regulations: similarly, a call from a clearinghouse to a clearing member firm asking the firm to make additional deposits to return clearing margins to the minimum level required by clearinghouse rules.
Mark to market
The daily adjustment of accounts and margin requirements to settle daily gains and losses in each open position at the end of each trading day.
Market if touched
A price order that becomes a market order when the financial instrument trades at a designated price at least once.
Market maker
An exchange member who improves market liquidity by placing bids and offers for his or her own account in the absence of or in addition to public buy and sell orders.
Market order
An order that is to be filled at the best possible price and as soon as possible, unlike a limit order, which may specify requirements for price or time of execution. See also Limit order.
Matched-pair trade
A strategy in which one would purchase and sell two different stocks within the same industry, but generally in the same contract month. For example, one could buy the strong stock, sell the weak stock, and profit from the difference.
Maturity
The time between the first notice day and the last trading day of a commodity futures contract. During this time, the contract must be settled either by delivery or by cash.
Maximum Price Fluctuation
See Limit move.
MEFF
The Spanish futures and options exchange that trades single stock futures.
Minimum Price Fluctuation
See Point.
Misrepresentation
An untrue or misleading statement about a material fact upon which a customer based an investment.
Momentum indicator
A line plotted to show the difference between today‘s price and the price a fixed number of days ago. For example, momentum can be measured as the difference between today‘s price and the current value of a moving average.
Often referred to as a momentum oscillator.
Moving average
A form of technical analysis that smoothes price and volume by averaging selected prices. It emphasizes the direction of a trend and confirms trend reversals.
Narrow-based index futures
Security futures products whose underlying asset is a narrow-based index, which has any one of the four following characteristics, in general, and subject to certain exclusions: (1) it has nine or fewer component securities; (2) any one of its component securities comprises more than 30% of its weighting; (3) the five highest weighted component securities together comprise more than 60% of its weighting; or (4) the lowest weighted component securities comprising, in the aggregate, 25% of the index‘s weighting have an aggregate dollar value of average daily trading volume of less than $50 million (or The Complete Guide To Single Stock Futures (Russel Wasendorf, SR. Elizabeth Thompson) Book no. 23in the case of an index with 15 or more component securities, $30 million). Also commonly referred to as narrow-based indexes or NBIs.
NQLX
A wholly electronic security futures exchange that was originally a joint-venture operated by NASDAQ and Euronext.liffe, it is located in the United States.
National Association of Securities Dealers (NASD)
The self-regulatory organization of the securities industry
National Futures Association (NFA)
The self-regulatory organization of the futures industry.
Nearby month
See Front month.
Net position
The difference between the open long (buy) contracts and the open short (sell) contracts in any one futures contract month or in all months combined.
Nominal price
Declared price, usually an average of bid and ask prices, for a futures month. It is sometimes used in place of a closing price when no recent trading has taken place in that delivery month.
Notice day
See Front day.
Notice of delivery
See Delivery notice.
National value
The face value, normally expressed is U.S. dollars, of the underlying asset of a futures contract.
Offer
A sign of willingness to sell at a stated price—the opposite of bid
Offset
Closing an open position through the purchase (sale) of an equal number of futures contracts of the same delivery months. This turns over the contractual obligations to someone else.
OneChicago
The joint-venture security futures exchange operated by Chicago Mercantile Exchange, Chicago Board of Trade, and Chicago Board Options Exchange.
Open
The time at the beginning of the trading session officially defined by the exchange during which all trades are considered to be made ―at the open‖.
Open interest
The sum of futures contracts that have not yet been offset or carried out by delivery.
Open outcry
A system of public auction for making bids and offers on trading floors.
Open trade equity
The potential gain or loss on open positions.
Option (option contract)
A one-sided contract that gives the buyer the tight, but not the obligation, to buy or sell a stated quantity of the underlying asset at a stated price within a designated time period, no matter what the market price of the underlying asset may be. The seller of the option has the obligation to buy the stated quantity of the underlying asset from the option buyer or to sell it to the option buyer at the exercise price it the option is exercised. See also Call (option), Put (option).
Option premium
The price of an options contract.
Option seller
See Writer.
Options Clearing Corporation
A clearinghouse for several U.S. markets and an issuer of all listed option contracts that are trading on national option exchanges.
Order execution
The management of a customer‘s order by a broker, including receiving the order, transmitting it to the trading floor or trading platform of the appropriate exchange, and returning confirmation (fill price) of the completed order to the customer.
Orders
See Limit order, Market order, Stop order.
Original margin
The initial deposit of margin money required of clearing member firms by clearinghouse rules, similar to the initial margin deposit required of customers.
Out of the money
A put option with a strike price below or a call option with a strike price above the current market value of the underlying asset.
Overbought
A view that the market price has risen too sharply and too quickly relative to underlying fundamental factors.
Oversold
A view that the market price has declined too sharply and too quickly relative to underlying fundamental factors.
Par
The face value of the security.
Parity
A description of the price relationship between a futures contract and its underlying asset when they are trading at the same price.
Performance bond
See Margin.
Physical settlement
The process of fulfilling a futures contract at the expiration date by delivering the underlying asset. A single stock futures contract‘s underlying asset is usually 100 shares of the stock.
Pit
A recessed area on the trading floor of some exchanges in which open-outcry futures or options trading takes place. Some exchanges have rings instead of pits.
Point
The minimum price movement for a futures contract.
Point-and-figure chart
A graph of prices charted with x‘s for rising prices and o‘s for declining prices; used to reveal buy and sell signals.
Point balance
A computation of official closing or settlement prices provided in a statement prepared by futures commission merchants to show profit or loss on all open contracts.
Position
An individual‘s standing in a market. For example, a buyer has long position and, conversely, a seller has a short position.
Position limit
The maximum number of security futures contracts any trader can hold in a position as designated by the Commodity Futures Trading Commission.
Position trader
A securities, futures, or options trader who maintains positions for an extended time period, in contract to a day trader, who will normally initiate and close positions within a single trading session.
Preferred stock
A security that generally pays a fixed dividend and that gives the holder claims to corporate earnings and assets that surpass those of the holders of common stock. See also Common stock.
Premium
(1) In price relationships between different delivery months of futures contracts or between a futures contract and its underlying asset, one trades at a premium over another when its price is greater than that of the other. (2) The price paid for an option.
Price delivery
The economic function provided by futures markets in determining cash market prices.
Price limit
The maximum price fluctuation, up or down, from the previous day‘s settlement price that is allowed for a commodity during one trading session. This limit is set by exchange rules.
Purchase and sale statement (P&S)
A statement that customer receives when a position has been liquidated or offset. The statement lists the quantity of contracts traded, the gross profit or loss, the commission charges, and the net profit or loss.
Put (option)
In options, a contract that gives a buyer the right, but not the obligation, to sell the underlying asset at a certain price on or before a certain date.
Quotation
The actual price or the bid or ask price of cash commodities, stocks, futures contracts, or options contracts at a specific time.
Rally
An upward movement of prices after a downward movement
Rally top
The price at which a rally stops. A bull move will usually hit many rally tops over its market span.
Range
The difference between the high and low price, generally during a single trading session.
Reaction
A short-term price movement against a current trend.
Recovery
See Rally.
Registered commodity representative
See Associated person (AP), Broker.
Registered representative
An employee of a broker/dealer who solicits its business, gives securities trading advice, and receives a percentage of commissions.
Regulation T
A rule of the Federal Reserve Board that limits the amount of credit that broker/dealers can extend to customers to enable them to purchase and carry securities.
Reporting limit
Sizes of positions for which commodity traders are required to make daily reports to the exchange and/or the CFTC. The sizes of reportable positions are designed by the exchange and/or by the CFTC. Daily reports include the size of the position by commodity, delivery month, and the purpose of trading, i.e., speculative or hedging.
Resistance
The price level at which bullish prices stop rising. It is the opposite of support.
Retender
The right of the holders of futures contracts who have received a delivery notice from the clearinghouse to offer the notice for sale on the open market, voiding their contractual obligation to take delivery; the
opportunity to retender is restricted to certain commodities and periods of time.
Retracement
A price movement in the opposite direction from the main trend.
Return
The percentage profit that one gains, or might gain, on an investment.
Ring
A round space on an exchange trading floor in which traders and brokers stand and execute futures or options trades. Some exchanges have pits instead of rings.
Risk disclosure statement
A statement sent out to potential futures traders that they must read and sign; by doing so, they acknowledge that they understand the risks involved in trading futures.
Roll forward
Liquidation of a position in a nearby month, followed by the purchase or sale of a distant contract month to transfer the long or short position. Also called a rollover.
Round turn
The combination of a purchase (sale) of futures contracts and the offsetting sale (purchase) of an equal amount of futures contracts with the same delivery month. Also known as a round trip.
Scalper
A speculator on an exchange trading floor who buys and sells rapidly for small profits and losses and holds positions for only a short time during a trading session.
Securities
Common stocks, preferred stocks, corporate bonds, and government bonds.
Security deposit
See Margin.
Securities and Exchange Commission (SEC)
The government-created commission that oversees the entire securities industry, including self-regulatory organizations like the NASD. It regulates security futures jointly with the CFTC.
Security futures principal
The designated supervisor accountable for the security futures business at a broker/dealer, futures commission merchant, or introducing broker.
Security futures product
A futures contract based on a single security or a narrow-based group of securities. See Narrow-based index futures, Single stock future.
Segregated account
An account that holds a customer‘s assets and separates them from the broker‘s or firm‘s assets.
Settlement
See Cash settlement, Physical settlement.
Settlement day
The designated day on which buyer and seller fulfill their contract through either final cash settlement or physical delivery.
Settlement price
The closing price or a price within the range of closing prices, as determined by the exchange, that is used to calculate net gains or losses at the official end of each trading day.
Shad- Johnson accord
An agreement between the CFTC and SEC to ban the trading of narrow-based stock index futures and single stock futures.
Short
An individual who has sold a security or a futures contract; a long, in contract, has purchased a security or futures contract.
Short hedge
The sale of futures to protect against a possible decline in the price of the underlying asset. See also Hedging.
Short sale
In stocks, borrowing shares and then selling them, with the requirement to repurchase them at a later date. Selling short is a bearish strategy.
Short-term capital gains rate
The tax rate applied to trading profits on assets held for a year or less.
Side
Each contract has two sides---- the buy action and the sell action. Two sides equal one round turn.
Sideways trend
A movement in price that does not go above or below certain levels.
Single stock future
A security futures contract based on an individual stock.
Speculator
A market participant who tries to forecast price changes and make profits through the sale and/or purchase of futures contracts. A speculator with a bullish price forecast tries to profit by purchasing futures contracts and then closing his or her long position with a later sale of an equal number of futures of the same delivery month at a higher price. A speculator with a bearish price forecast tries to profit by selling futures contracts and then covering his or her short position with a later purchase of futures at a lower price.
Spot
Usually, the cash price for a product available for immediate delivery. Also refers to the nearest contract month for delivery.
Spot commodity
See Cash Commodity.
Spread
(1) The simultaneous purchase of one futures contract and sale of another in order to profit from the variations in price relationships between the two contracts. Several versions of a spread include the purchase of one contract month and the sale of another contract month of the same commodity; the purchase of one contract month of one commodity and the sale of the same contract month of a similar, but different, commodity; or the purchase of a commodity in one market and the sale of the same commodity in another market. (2) The price difference between two similar markets or trading instruments. See also Arbitrage.
Stand-alone system
A trading program that you download directly onto your computer.
Stock
A percentage of ownership in a company. Stock ownership entitles one to be involved in the company‘s growth and decline, to receive dividends as declared by the company‘s board of directors, to choose members of the board of directors, and to participate in corporate actions as determined by law.
Stock index
An indicator that measures price changes in a specific group of stocks or tracks the overall market. Indexes vary based on their composition, the sampling of stocks, the weighting of individual stocks, and the method of averaging used to establish the index.
Stock future
See Security futures product.
Stock split
The division of stock into a larger number of shares that are worth less. For example, a 2-for-1 stock split would create twice the number of shares, but these shares would be worth half the price. A reverse split creates a smaller number of shares that are worth more.
Stop loss
A risk management strategy to liquidate a losing position at a given point. See Stop order.
Stop limit order
Similar to a stop order, except that the trade must be executed at the exact price or better. If the order cannot be fulfilled at the exact price, it is held until the exact price or better is reached again.
Stop order
An order to buy or sell that becomes a market order when the market hits a designated price. A buy stop is placed above market price, and a sell stop is
placed below market price. Also known as stop-loss order.
Strike price
See Exercise price.
Suitability requirement
An NASD and NFA rule that requires as security futures principal to ascertain whether customers‘ financial means and investment objectives are appropriate to security futures trading.
Suitable
As assessment of an investor who trades in accordance with his or her financial means and investment objectives.
Support
A price level at which bearish prices have stopped falling. It is the opposite of resistance. Once this level is reached, prices consolidate for a period of time.
Synthetic future
A combination of a put and a call with the same strike price. If both are bullish, it is a synthetic long futures; if both are bearish, it is a synthetic short future. Such combinations mimic the purchase or sale of a single stock futures contracts, and thus the risk/return characteristics of trading a single stock futures contract.
Technical analysis
The examination of technical indicators, such as price range patterns, rates of change, volume changes, and open interest, in order to forecast future prices.
Tender
The notice that a seller of futures contracts gives to the clearinghouse to inform it that he or she intends to deliver the underlying asset to fulfill the contract. The clearinghouse then sends the notice to the oldest recorded buyer in that delivery month. See also Retender.
Tick size
The minimum change in price, up or down, for a security or futures or options contract. See also Point.
Time value
Any amount by which an option premium is above the option‘s intrinsic value, usually relative to the time left to expiration.
Trader
(1) One who trades for his or her own account. (2) an employee of a broker/dealer (B/D), futures commission merchant (FCM), or other type of institution who trades for her or his employee‘s account.
Trading range
An established set of high and low price limits within which a market will spend a distinct period of time.
Transaction costs
The expenses associated with buying or selling a financial instrument, such as brokerage commissions, regulatory fees, taxes, and the spread between the bid and offer prices.
Transferable Notice
See Retender.
Trend
The general direction of price movement in a market. See Downtrend, Uptrend.
Trend line
A line that connects a series of either highs or lows in rice movement. An uptrend line represents support, whereas a downtrend line represents resistance. Horizontal trend lines mark periods of consolidation.
Unauthorized trading
Buying or selling financial instruments for a customer‘s account without the customer‘s permission.
Underlying
(1) The cash commodity, index, or security on which futures contracts are based. (2) the futures contract, index, or security on which options are based.
Unit of trading
The quantity of the underlying asset that a futures contract represents. The
unit of trading of single stock futures contract is generally 100 shares of the stock for 1 contract. Each security futures exchange sets the size of its own contracts. Also, the minimum quantity required when trading.
Uptick
A situation in which a financial instrument sells for more than its previous transaction price. See Downtick.
Uptrend
The tendency for a market‘s price movements to create a series of higher high and higher lows.
Variable limit
A price system that permits greater-than-normal price movements under certain conditions, such as extreme volatility.
Volatility
A calculation of a futures contract‘s tendency for price fluctuation based on its daily price history over a period of time.
Volume
On a futures exchange, the number of contracts, usually round turn, traded during a specified period of time.
Wirehouse
See futures commission merchant (FCM)
Writer
The seller of an option. The seller is obligated to buy (in the case of a put) or sell (in the case of a call) the underlying asset. The buyer has the right, but is not obliged, to buy (in the case of a call) or sell (in the case of a put) the underlying asset.
Note: This glossary is included only to assist the reader and should not be construed as a set of legal definitions.
All Ordinaries Index
Index used to measure the share price movements in Australia‘s top public companies listed on the Australian Stock Exchange; also referred to as the ‗All Ords‘
American style
This means the holder of a warrant has the right to buy or sell shares in lots of 1000 at any time up to an expiry date
Annual General Meeting (AGM)
Yearly meeting of shareholders to discuss the performance of the company as the set out in the annual report, to vote on certain issues and to elect company directors
Annual report
Report prepared by the directors of a company that sets out the company‘s financial accounts and a summary of its performance.
Assessable income
Income you derive that is liable to tax; assessable income consists or ordinary income and statutory income
Australian Securities and Investment Commission (ASIC)
The Australian Government‘s regulator of the financial services industry
Bear Market (bearish)
Term to indicate the ‗down‘ direction of prices for shares in a falling market
Bid
The price you are prepared to pay for shares in a company
Blue chip
Any public company that is well established and trading profitably
Bonus shares
Free shares issued by a company; the amount of shares you receive will normally be in proportion to your current holding; for example, if a company declares a 1 for 5 bonus issue, you will receive one free share for every five you own; as more shares are now in circulation their market price will tend to fall.
Bookmark
An electronic marker used to remember favourite sites on the internet for quick access during future internet use
Brokerage fee
The charge you pay for having a stockbroker buy and sell shares on your behalf; this is shown on the Buy and Sell Contract note; it is a negotiable fee and is usually based on a percentage of the market price of the shares at the time you buy or sell
Bull market (bullish)
Term to indicate the ‗up‘ direction of prices for shares in rising market
Bulletin boards (BBS)
Electronic announcement boards found on the internet where users of common interests can post text messages relating to information and resources of relevance to others for pure pleasure, curiosity or interest
Buy contract note
An invoice you receive from stockbroker when you buy shares; it will summarise the details of the transaction, and can be used to calculate a capital gain or capital loss for taxation purposes
Call option
Gives the holder the right, but not the obligation, to buy shares in lots of 1000 at an agreed price on or before an expiry date; a call option is worth buying in a rising market
Call warrant
Gives the holder the right, but not obligation, to buy shares in lots of 1000 from the issuer (a financial institution) at an agreed price on or before an expiry date; a call warrant is worth buying in a rising market
Capital gain
A gain you make when you sell assets like shares for more than what you originally paid; under Australian Income Tax Law, a capital gain is subject to tax
Capital gain tax
A tax on a capital gain you make on disposal of assets like shares that you acquire on or after 20 September 1985; assets acquired before this date are excluded from these provisions
Capital growth
Increase in the price of investments like shares
Capital loss
A loss you make when you sell assets like shares below the price you originally paid; under Australian Income Tax law, a capital loss can only be offset against a capital gain
Chat rooms
Specific sites found on the Internet where users may electronically talk to each other via text communications from anywhere in the world in live group sessions or one-to-one sessions; visual and audio communication is also available on some sites
CHESS
This means ‗Clearing House Electronic Sub-Register System; under the system, a stockbroker sponsors you but the company sends a Holding Statement for the shares you hold
Company (Companies)
A separate legal entity that is capable of carrying on a business in its own right; a company raises capital to fund is business operations through the issue of shares
Consumer price index
The index used in Australia to measure the rate of inflation
Cost base
Under the capital fain tax provisions, the price you pay for assets like shares; it could also include sale costs and other associated costs you may incur
Course of trade
The indicator used by online stockbrokers to track a company‘s share-trading history during the course of the trading day; it is used to tell share traders at what price a stock has been selling and at what price it has been purchased, as well as the volume of orders placed and when trading occurred
Cross-border trading
The trading of shares in government-approved markets overseas without having to be a citizen of the foreign country
Cum dividend
Buying shares that carry the right to receive a dividend; this means the buyer of the shares will become entitled to receive a dividend rather than the seller of the shares
Cyclical company
Any public company whose income and capital growth is derived from continual economic activity and general growth
DAX
The performance index of the top public companies listed on the Frankfurt Stock Exchange in Germany; DAX stands for Deutsche Aktienindex
Day trader
Any person who buys and then sells shares on the same trading day for profit
Defensive company
Any public company whose business operations are not greatly affected by a change in economic conditions
Digital cash (or e-money)
Electronic cash used to buy and sell goods and services offered on the Internet from an online bank account (the whole online transaction takes place electronically on the Internet)
Direct-debt facility
A mechanism directing a bank or any other financial institution to electronically transfer funds from a user‘s account
Directors
Anyone appointed by a company‘s shareholders to manage and run the day-to-day operations of a company
Discount capital gain
A capital gin on disposal of assets (like shares or units in a Managed Fund) after 21 September 1999 that you had owned for at least 12 months; only half of the capital gain will be liable to tax at you marginal rate plus a Medicare levy
Dividend
A distribution of profit you receive from a company because you are a part owner; the amount you receive depends on the number of shares you own
Dividend imputation credit
A tax credit that you receive from a dividend that is franked; the size of the credit is dependent on the company tax rate
Dividend Reinvestment Plan
Any offer where you receive shares from a public company instead of a cash dividend; the shares may be offered to you at a discount and no brokerage fee or stamp duty is payable
Dividend yield
The rate of return from your share investment calculated as follows:
Dividend payment/Current market price*100
Do-it-yourself superannuation fund
Any superannuation fund that you manage yourself
Dot-com(s)
Term connected with investing in new technology and Internet companies
Dow Jones
The share price performance index of the thirty largest public companies listed on the New York Stock Exchange in the USA; the Dow Jones was founded in 1884 and named after economists, Dow and Jones---- it is formally known as the ‗Dow Jones Industrial Average‘
Dynamic data
Internet-related computer program that allows for simultaneous handling of different types of data such as text, graphics, video and/or audio, often providing the latest information to online users
Earning per share
The amount of net profit a company earns divided by the number of shares issued equates to the earning per share
Electronic mail or ‗e-mail‘
Mail in electronic form written and read from any Internet-enabled
communication device such as text, graphics, sounds and/or video
Electronic share trading
Any share trading that takes place across the Internet with any Internet-enabled communication device via an online stockbroking service
European style
This means the holder of a warrant has the right to buy or sell shares in lots of 1000 on an expiry date
Ex-dividend
Buying shares that do not carry the right to receive a dividend that is due for payment; the dividend will be paid to the seller of the shares
Exercise price
The share price holders of call options or call warrants pay if they exercise their right to buy the underlying shares; also, the share price holders of put options or put warrants will receive it they exercise their right to sell the underlying shares
Facsimile (fax)
A copy of a text document that has been scanned through a facsimile machine and transmitted over a telephone line to another facsimile machine for conversation back to a printed copy on paper for the recipient to view
Final dividend
A dividend paid at the end of the financial year
Financial year
A 12-month accounting period for taxation purpose; in Australia this is the period that commences on 1 July and ends on 30 June of the following year
Float(s)
Newly listed companies that wish to raise initial capital by offering their shares to the public
FTSE
The performance index of the top public companies listed on the Financial Times Stock Exchange in the UK
Franked dividend
A dividend that carries credit and can be applied against any tax payable as a dividend imputation credit; if no credit is received the dividend is said to be unfranked (it is also possible to receive a partially franked dividend)
Full service broker
Any stockbroker that provides information, advice and share trading facilities in the form of person-to-person trading, telephone trading and online trading
Goods and Services Tax (GST)
A 10 per cent tax on goods and services you purchase in Australia
Growth company
Any public company operating in a sector of the economy which is constantly growing
Grossing up (grossed-up)
A term used when both the dividend you receive and the imputation credit are added together as part of your taxable income; you will be taxed on the total amount and the imputation credit is applied against the tax payable
GSM mobile fax
A facsimile service available by concerning a digital mobile phone to computer installed with a data card or via an infrared connection
Hang Seng
The performance index of the top public companies listed on the Hong Kong Stock Exchange (it is named after the Hang Seng bank)
Holder Identification Number (HIN)
An identification number you receive under CHESS that you use when you buy or sell shares through a particular broker
Holding Statement (Statement of Holding)
A statement issued by a company confirming the number of shares you own
Information superhighway
A common term used to describe the Internet
Interface device
Any device used by Internet users to connect with the Internet
Internet
A worldwide network of computers allowing for the electronic exchange of information as text, graphics, video and/or sound
Internet booth
Any public area housing a fixed computer connected to the internet for anyone to access
Internet browser(s)
A program used by Internet users to scan electronically through the various websites located on the Internet
Internet cafe
Any local café or shop that offers access to the internet from computers set up in booths for patrons to send and receive e-mails and other social electronic communication uses while eating at the premises
Internet-enabled mobile phone
Any mobile phone with access to Internet-based services
Internet-based personal communications device
Any hand-held electronic device with access to Internet-based services
Internet search engine
A computer program used to locate relevant sites on the Internet based on subject, titles and other search criteria by using key words
Interim dividend
A dividend that is normally paid mid-year
Internet Service Provider (ISP)
Any business that offers Internet access and connection as well as other Internet-related services
Laptop computer
A portable computer that is small enough to sit on one‘s lap-----the keyboard is not necessarily fixed as one unit
Listed company
A public company listed on a stock exchange; shares and securities of listed companies can be traded on a stock exchange
Managed Funds
Pooled investment funds that offer a wide range of investment options; under this arrangement professional trustees and fund managers will be responsible for managing the investments for you (you will incur a charge for this service)
Marginal rate of tax
A progressive rate of tax payable on the income you earn----- for the 2002 financial year the marginal rates of tax in Australia are
* nil: up to $6000
* 17% : if your taxable income is between $6000 and $20 000
* 30% : if your taxable income is between $20 001 and $50 000
* 42% : if your taxable income is between $50 001 and $60 000
* 47% : if your taxable income more than $60 000
Market depth
An indicator used by online stockbrokers monitoring the level of demand by the market on any given day for a particular stock
Market price
The current share price that you can trade shares for on a stock exchange
Medicare levy
A medical levy that you must pay if your taxable income is above a statutory amount; this levy is based on a percentage of your taxable income
Message boards
Electronic announcement boards found on the Internet where users with common interests can post text messages for all to view
Mobile information age
A period characterized by the use of Internet-enabled hand-held electronic devices for worldwide communication for all to view
Modem
A device that connects to a telephone line to transfer data electronically between computers separately located
MSN Messenger Service
An Internet-based e-mail service provided by Microsoft where information specific to a recipient‘s interests are delivered to their e-mail address (MSN stands for Microsoft Network)
NASDAQ
This stands for the National Association of Securities Dealers Automated
Quotation system; its performance index (‗the NASDAQ‘) monitors the over-the-counter trading in the USA
Negative gearing
A term associated with borrowing money to purchase an income-producing asset; negative gearing arises when your expenses exceed your income and most of those expenses consist of interest
Net tangible asset
The net value of a company expressed on a per share basis; the following formula is used to calculate the net asset backing of a company:
Ordinary Shareholders Funds less Intangible Assets/Number of Ordinary Shares
New economy
A market made up of companies offering goods and services related to the Internet
Nikkei index
The performance index of the top public companies listed on the Tokyo Stock Exchange in Japan
Non-discount capital gain
A capital gain on disposal of assets (like shares or units in a Managed Fund) after 21 September 1999, that you had owned for less than 12 months (the entire capital gain will be liable for tax at your marginal rate plus a Medicare levy)
Notebook computer
A portable computer about the size of most briefcases and/or computer bags-----the keyboard is fixed
Offer
The price at which you are prepared to sell your shares in a public company listed on a Stock Exchange
Online electronic banking
Any banking service offered via the Internet
Online service
Any service that can be accessed electronically by an Internet-enabled communications device
Online trading
When shares are purchased and sold via an Internet-based stockbroking service
Ordinary share
A class of share that gives a shareholder voting rights, the right to receive dividends and the right to distribution of capital; shareholders who own ordinary shares are paid last if a company is wound up or goes into liquidation
Pager
A pocket-sized device that only receives short text-based messages and other information
Paging services
Any messaging service offered on a pager
Personal Digital Assistant (PDA)
Any screen-based, multi-featured hand-held personal communications device where an electronic pen is used to enable a personal organizer, fax, mobile phone, e-mail and other Internet-based facilities
Preference share
Shares that give shareholders the right or preference to a predetermined amount of dividends and return of capital prior to any ordinary shareholders receiving any rights
Premium
The price you pay (or receive) for an option or warrant
Price Earning ratio (PE ratio)
Measures the willingness of investors to purchase shares in a company; it is calculated by dividing earnings per share into the current share price
Prospectus
A legal document issued by companies wanting to rise finance; it sets out the terms and conditions of the loan and other matters required by law
Put option
Gives the holder the right, but not the obligation, to sell shares at an agreed price on or before an expiry date; a put option is worth buying in a falling
market
Put warrant
Gives the holder the right, but not the obligation, to sell shares in lots of 1000 to the issuer (a financial institution) at an agreed price on or before an expiry date
Rate of return
The return on your investment expressed as a percentage
Real-time share price tracking
Live monitoring of share prices as they move up and down throughout the trading day as well as volumes traded and numbers of trades
Real-time transactions
Electronic transactions that take place live without any delays across the Internet
SEATS
The stock exchange‘s electronic share trading system where the buying and selling of stocks is conducted using computers (it stands for Stock Exchange Automated Trading System)
Security Holder Registration Number (SNR)
An identification number issued by a public company at the time you buy shares in that company
Sell Contract note
An invoice you receive from a stockbroker when you sell shares in a public company; it will summarize the details of the transaction and can be used to calculate a capital gain or capital loss for taxation purposes
Share Purchase Plan
The opportunity to buy additional shares direct from the company free of brokerage; the shares may be offered to you at a price below their current market price
Shares
Associated with the ownership of a company; holding shares entitles you to receive dividends
Shareholder
Any person who owns one or more shares in a company
Shareholder Dividend Statement
A statement you receive from a company at the time it pays you a dividend; it will summarize the details of the payment and should be retained for taxation purposes
SMS
Term used to describe any short text message sent and received on any digital mobile phone
Spam
Term used to describe any short text message sent and received on any digital mobile phone
Spam
Term used to describe unsolicited junk electronic mail sent across the Internet to users
Standard & Poor‘s 5000 stock index
The performance index of the top 500 US-based public companies (the index is named after the US credit-rating agency)
Stockbroker(s)
Professional(s) authorized to buy and sell shares on the stock exchange; stockbrokers charge a brokerage fee for their services
Superannuation fund
A fund set up to finance retirement strategies; money cannot normally be accessed until you reach 55 years of age and retire from the workforce
Taxable income
Any amount of income that is subject to tax
Unfranked dividend
A dividend that does not carry any imputation credits
Underlying shares
The shares you will be buying or selling
WAP mobile phones
Digital mobile phones that can access the Mobile Internet and exchange electronic information by using the telecommunications‘ standard for transferring electronic data called ‗Wireless Access Protocol‘ or WAP
Warrant
An option issued by a financial institution that gives the holder the right but
not the obligation to buy from the issuer or sell to the issuer shares in lots of 1000 at an agreed price on or before an expiry date
Watch list
A list of shares that can be set up by you on your computer screen or on any other Internet-enabled communications device to watch their share price movements and other trading details live throughout the trading day
Website
Any site found on the Internet located with a web address; it is made up of web pages containing electronic information and/or resources for users (the information provided may be as text, graphics, video and/or sound)
Yield(s)
The return you receive from your share investment; this return will be expressed as a percentage
24-Hour loans
Loans for which 24 hours, notice has to be given by the borrower or lender of an intention to repay or recall the funds or renegotiate the interest rate. By market convention, such loans are made for initial period of 7 days.
Abnormal return
A realized return in excess of the return expected for a given level of risk
Acceptor
The party, usually a bank, who accepts primary responsibility for paying the face value of a bill of exchange to the holder of the bill at its maturity date
Accounting rate of return
The earnings from a project expressed as a percentage of the investment outlay
Accounts receivable
Money owed to a business for good or services sold in the ordinary course of business
Acid test ratio see quick ratio
Agency costs
Costs that arise due to a conflict of interest between principals and agents (for example, between shareholders and mangers). These costs include monitoring costs borne by principals in an attempt to ensure that agents act in the principals, best interests
American option
An option contract that may be exercised at any time up to and including the expiry date. See European option
Annuity
A cash flow stream of equal amounts, paid at equal time intervals for a specified number of periods
Annuity due
Annuity where the first payment is to occur immediately
Arbitrage
Buying an asset and simultaneously selling it for a higher price, usually in another market , so as to make a risk-free profit
Arbitrage pricing model
A model of asset pricing that describes the risk premium for a risky asset as a linear combination of various risk factors
Arbitrageur
A person engaged in arbitrage. See arbitrage
Australian Stock exchange (ASX)
The national stock exchange formed in April 1987 by amalgamation of the six state stock exchanges. This created on body to govern share market trading in Australia. The exchange sets uniform trading rules, listing requirements and ethical standards
Average collection period
The average period required by a firm to collect a credit account. It is calculated from accounts receivable divided by (annual credit sales/365)
Bad debts
Accounts receivable that have proven to be uncollectible and are written off
Bank-accepted bill a
A negotiable bill where a bank guarantees payment of the bill‘s face value at maturity. This guarantee is made at the inception of the bill.
Bank bill
A bill of exchange that has been accepted or endorsed by a bank
Bank-endorsed bill
A bill of purchased by a bank which when sold carries a guarantee that, if necessary, the bank will pay the face value at maturity
Bankruptcy
In Australia, a legal status applying to individuals unable to pay their debts. American usage, which has been followed in this book, extends this concept to cover corporations. See liquidation
Bankruptcy costs
The direct and indirect costs associated with financial difficulty that leads to control of a company being transferred to lenders
Basis point
The unit measure when describing changed in interest rates in financial markets. \if an interest rated changes from 10 per cent to 10.01 per cent, the
rate has increased one basis point. Thus a basis point is one hundredth of a per cent
Benefit- cost ratio or Profitability index
An index use in investment evaluation, calculated by dividing the present value of the future net cash flows by the initial cash outlay
Beta
A measure of a security‘s systematic risk, describing the amount of risk contributed by the security to the market portfolio
Bid-ask spread
The difference between the price buyers are prepared to pay for an asset and the price at which sellers are offering to sell the asset
Bill of exchange
Signed, written order by which one party (the drawer) instructs another party (the accepter) to pay a specified sum to , or to the order of , a specified party or to the bearer
Bird-in-the-hand dividend theory
The theory that investors prefer dividend income to capital gain because current dividends are more certain than future capital gain
Bonds or debentures
Long-term debt securities
Bonus issue
A free issue of shares to existing shareholders in proportion to their current shareholding
Book value
The depreciated amount of a firm‘s assets (acquisition cost or revalued amount less accumulated depreciation)
Business risk
The variability of future net cash flows attributed to the nature of the company‘s operations. It is the risk shareholders face if the company is financed only by the equity
Call option
An option in which the buyer has the right but not the obligation to buy an asset (such as shares) at a specified exercise price within a specified time period
Capital asset pricing model
A model that describes the equilibrium relationship between risk and expected return by risky assets and portfolios
Capital gain and loss
The difference between the acquisition cost of an asset and its disposal price, the gain or loss that arises from the sale of an asset
Capital market
The market in which long-term financial securities are traded
Capital market line
The efficient set of all portfolios that provides the investor with the best possible investment opportunities when a risk-free asset is available. It describes the equilibrium risk-return relationship for efficient portfolios, where the expected return is a function of the risk-free interest rate, the expected market risk premium, and the proportionate risk of the efficient portfolio to the risk of the market portfolio
Capital structure
The mix of debt and equity finance used by a company
Carrying costs
Costs that increase as the level of investment in current asset increases
Characteristic line
The line that describes the relationship between the returns on a particular security and the returns on the market portfolio
Classical tax system
The system that operated in Australia until 30th June 1987which meant that company profits, and dividends paid from those profits, were taxed separately--- that is , profit paid as a dividend was effectively taxed twice
Clientele effect
The effect of investors choosing to invest in firms that have policies meeting their particular requirements. For example, investors who require high current income may choose to invest in firm that have high dividend payouts
Collection policy
The efforts made to collect delinquent accounts either informally or by a debt collection agency
Commercial hire purchase
An agreement to purchase goods by installment payments
Commercial paper see Promissory note company
A separate legal entity formed under the Corporations Law
Compound interest
Interest calculated each period on the principal amount and on any interest earned on the investment up to that point
Consistency principle
In applying the net present value model, the net cash flows in the numerator should be defined and measured in a way that is consistent with the measurement of the discount rate in the denominator
Constant chain of replacement assumption
Used to evaluate projects of unequal lives; the project are assumed to be replaced to a common point in time by projects which are identical in terms of cash flow stream, technology, life span, and so on
Consumer credit
Credit extended to individuals by suppliers of goods and services, or by financial institutions through credit cards
Conventional projects
Those with a cash flow pattern which involves an initial cash outlay followed by a series of positive net cash followed by a series of positive net cash flows
Convertible note
A debt security which, at the option of the investor, may be converted into a specified number of ordinary shares at maturity
Correlation coefficient
A statistical measure describing the degree of relationship between two variables
Cost of capital
The minimum rate of return needed to compensate suppliers of capital for committing resources to an investment
Coupon rate
The amount of interest payable annually on a bond or on debenture, expressed as a percentage of the face value
Covariance
A statistical measure describing the degree of relationship between the returns of two assets
Credit foncier loans
A type of loan that involves regular payments which include principle and interest
Credit period
The period between the date that a purchaser is invoiced and the date when payment is due
Credit policy
A supplier‘s policy on whether credit will be offered to customers and on the terms that will be offered
Credit risk
The possibility of loss because of default by the counterparty to a transaction
Cum-dividend period
The period during which the purchaser of a share is qualified to receive a previously announced dividend. The cum-dividend period ends on the ex-dividend date
Cum rights
When shares are traded cum right the buyer is entitled to participate in the forthcoming rights issue
Cum-right period
The time period during which the purchaser of a share during qualifies for receipt of a previously announced rights issue. The cum-rights period ends on the ex-rights date
Current assets
Cash, inventory, accounts receivable and other assets that will normally be converted into cash within a year
Current liabilities
Debuts or other obligations due for payment within a year
Current ratio
A liquidity ratio measured by current assets divided by current liabilities
Debenture
A long-term debt security issued by a company
Debt
The obligation of an entity to pay a specific amount of money to another entity
Default risk
The chance that a borrower will fail to meet obligations to pay interest and principal as promised
Delinquent accounts
Accounts where payment has not been made by the due date
Depreciation
The process of allocation the cost (or other value) less estimated disposal value of a non-current asset over its expected useful life. The two main methods of calculating depreciation are the straight-line and reducing-balance methods
Derivative security
A security whose value depends on the value of an underlying security
Discount period
The period during which a discount for prompt payment is available to the purchaser
Discount rate
An expression of the price reduction a purchaser will receive if payment is made within the discount period
Discount cash flow (DCF) methods
Those methods that involve the process of discounting a series of future net cash flows to their present values
Discounter
A party who provides or lends funds by purchasing a bill of exchange or other short-term security
Diversifiable risk
That element of total risk unique to the firm and which may be eliminated by diversification
Dividends
Periodic distribution of profit, usually in cash, by a company to its shareholders. In Australia
Dividend clienteles
Groups of investors who choose to invest in companies that have dividend policies which meet their particular requirements
Dividend drop-off ratio
The ratio of the decline in the share price on the ex-dividend date to the dividend per share
Dividend growth model
Model expressing the value of a share as the sum of the present values of future dividends where the dividends are assumed to grow at a constant rate
Dividend imputation tax system
System under which profits distributed as dividends are taxed only once because shareholders receive a credit for tax paid by the company
Dividend payout ratio
The percentage of profit paid out to shareholders as dividends
Dividend reinvestment plan
An arrangement made by a company which gives its shareholders an option of reinvesting all or part of their dividends in additional shares in the company usually at a small discount from the marker price
Dividend yield
The dividend per share, divided by the current price of the share
Drawer
The party who issue a bill of exchange
Earning per share (EPS)
A company‘s profit, divided by the number of ordinary shares on issue
Economic order quantity (EOQ)
The optimal quantity of inventory ordered that minimises the cost of purchasing and holding the inventory
Effective interest rate
Interest rate earned per year that builds in the effect of compounding
Efficient market
A market in which security prices fully reflect all available information
Efficient market hypothesis
The hypothesis that asset prices fully reflect all available information about
(EMH)
the asset.The implies that prices adjust instantaneously and in an unbiased way to new information about the asset. Therefore investors cannot consistently earn abnormal returns
Efficient portfolio
A portfolio that maximizes the expected return for a given level of risk
Equity
The ownership interest is the firm. In the case of a company it is represented shareholders‘ funds
Equivalent annual value method
Involves calculating the annual cash flow of an annuity that has the same life as the project and whose present value equals the net value of the project
Eurobond
A medium to long-term international bearer security sold in countries other than the country of the currency in which the bond is denominated
European option
An option that can be exercised only on the expiration date. See American option
Exchange rate
The price of one country‘s currency expressed in terms of another country‘s currency
Ex-dividend date
the date on which a share begins trading ex-dividend. A share purchased ex-dividend does not include a right to the forthcoming dividend payment
Ex-right date
The date on which a share begins trading ex-rights. After this date a share does not have attached to it the right to purchase any additional share(s) on the subscription date
Exercise (or strike) price
The price at which an option holder can buy (if it is a call option) or sell (if it is put option) the underlying security
Expected rate of return
The expected return, divided by the sum invested
Expected return
The mean value of the probability distribution of possible outcomes for returns of a security
Factoring
The sale of a firm‘s accounts receivable at a discount to a financial institution (the factor)
Finance lease
A long-term non-cancellable lease that effectively transfers the risks and benefits of ownership of an asset from the lessor to the lease
Financial agency institution
One which arranges or facilitates the direct transfer of funds from lenders to borrowers
Financial assets
Assets such as shares, bonds, deposits. The holders of financial assets issued by a business have claims against its real assets
Financial derivatives
Securities whose value depends on the value of an underlying financial security and includes futures contracts, options and swaps
Financial distress
A situation where a company‘s financial obligations cannot be met, or can be met only with difficulty
Financial distress costs
Direct costs (such as legal and administrative costs) and indirect costs (such as impaired ability to conduct business) associated with financial distress
Financial futures contract
A futures contract where the underlying asset is financial in nature rather than a commodity
Financial intermediary
An institution that acts as a principal in accepting funds from depositors and lending them to borrowers
Financial leverage
The relationship between borrowing and equity. Financial leverage is measured by ratio
Financial risk
The risk attributable to the use of debt as a source of finance
Fixed charge
A form of security which, if the borrower defaults on the loan contract, gives the lender the right to take control of the specific asset (or assets) pledged
Floating charge
A form of security which, if the borrower defaults on the loan contract, gives the lender the right to take control of any of the borrower‘s assets other than those specifically pledged to another lender
Foreign bond
A bond issued outside the borrower‘s country and denominated in the currency of the country in which it is issued
Foreign exchange market
A market in which the world‘s currencies are bought and sold
Forward contract
A contract in which a seller agrees to deliver an asset to a buyer on an agreed future date
Forward price
The price of an asset purchased for a delivery at a given time in future. Examples include exchange rates and interest rates
Forward-rate agreement
An agreement to pay or receive a sum of money representing an interest differential, such that the interest rate applicable to a specified period is fixed
Franked dividend
A dividend that carries a credit for income tax paid by the company
Franking premium
That part of the return on shares or a share market index which is due to tax credits associated with franked dividend
Free cash flow
Cash generated by a company that cannot be invested profitably in its existing lines of business
Fully drawn facilities
Those which provide a borrower with a specified amount of funds for a specified period of time
Future sum
Future cash sum equivalent to specified amount today
Future value
A future sum equivalent to a specified amount today, or to a specified cash flow. A future value is calculated by compounding at a given interest rate
Future contract
Standardized and traded on an exchange, it is an agreement between two parties to buy and sell an asset at a specified future date
Hedge
A risk-reduction technique involving the creation of a cash flow to offset an existing cash flow
Home made leverage
The duplication of the effects of corporate leverage by investors borrowing on their own account
Implicit forward rates
Interest rates related to future periods that are implied by the current yields on bonds with different terms to maturity
Imputation tax system
The system under which investors in shares can use tax credits associated with franked dividends to offset their personal income tax. The system eliminates the double taxation inherent in the classical tax system
Imputed tax credit
The credit for Australian company tax paid which, when distributed to shareholders, can be offset against their tax liability
Independent project
One that may be accepted or rejected without affecting the acceptability of another project
Information asymmetry
A situation where all relevant information is not known by all interested parties. Typically, this involves company ‗insiders‘ (managers) having more information about the company‘s prospects than ‗outsiders‘, such as shareholders
Inside information
Information about a company that is not known to the general public
Interest rate
The rate paid for borrowing or lending money
Interest rate risk
The chance that interest rates will change in the future , thereby changing the value of an asset
Intermediation
The process whereby funds are borrowed or invested through financial intermediaries. Financial intermediaries do this by taking deposits and lending to borrowers
Internal rate of return (IRR)
The discount rate that equates the present value of a project‘s net cash flows with its initial cash outlay: it is the discount rate at which the net present value is equal to zero
Internally generated funds
Funds available for investment that are generated from the company‘s operations
Inventory turnover ratio
The ratio of cost of goods sold to inventory. It measures the number of times a company‘s inventories are sold and replaced during the year, reflecting the relative liquidity of inventories
Investing institution
Accepts funds from the public and invests them in assets; includes superannuation funds. Life insurance companies and unit trusts
Investment allowance
A provision of the tax system that allows a business to reduce its taxable income by an amount equal to specified percentages of the cost of eligible new plant. This provision has been introduced periodically to stimulate investment
Issue costs
The costs of raising new capital by issuing securities. These costs include underwriting fees and legal, accounting and printing expenses incurred in preparing a prospectus or other offer documents. Also known as floatation costs
Lease
In a lease contract, the party (the lessee) is granted the right to use the property of the lessor for a specified period of time at an agreed rental
Lessee
In a lease contract, the party that using the asset
Lessor
In a lease contract, the party owns the asset
Leveraged lease
A financial lease where the lessor borrows most of the funds to acquire the asset
Limited liability
A legal concept which protects shareholders whose liability to meet a company‘s debts is limited to any amount unpaid on the shares they hold
Liquid assets
Cash and assets that are readily convertible into cash, such as bank deposits and Treasury notes
Liquidation
The process of selling a company‘s assets, either individually or as a whole. It is frequently undertaken when a company is no longer able to meet its financial obligations. The company is wound up and the proceeds of the sale of its assets are distributed to creditors and shareholders as specified in the Corporations Law
Liquidity
The speed and ease with which an asset can be converted into cash without substantially affecting its price
Liquidity management
Decisions on the composition and level of a company‘s liquid assets
London interbank offered rate (LIBOR)
A commonly used reference rate, derived daily from the interest rates at which major international banks in London will lend to each other
Long hedge
The purchase of a futures contract, to reduce risk
Margin call
The requirement to lodge additional funds when adverse movements in the
price of a contract erode the initial deposit to a level below the specified minimum level
Marginal cost of capital
The cost of a capital on an incremental project
Market model
A time series regression of an asset‘s returns on the market index, it represents the empirical analogue of the capital asset pricing model
Market portfolio
The portfolio of all risky assets, weighted according to their market capitalization
Market risk
Systematic or non-diversifiable risk. That component of return variability due to economy-wide factors
Market risk premium
The difference between the expected return on the market portfolio and the risk-free interest rate
Marking to market
The process of frequently adjusting the recorded value of an asset to its market price. In futures markets this process is carried out daily and results in adjustment to traders‘ accounts
Money market
The market in which short term debt securities are traded
Monitoring costs
Costs incurred by principals in monitoring the behaviour of their agents
Mortgage
A form of security where the lender (mortgagee) has the right to take possession of and sell property if the borrower (mortgagor) defaults
Mutually exclusive projects
Such projects are alternative investment projects, only one of which can be accepted
Net present value (NPV)
The difference between the present value of the net cash flows from an investment discounted at the required rate of return, and the initial outlay on investment
Nominal cash flow
Cash flow that include the effects of inflation
Nominal interest rate
Quoted or advertised rate of interest
Non-diversifiable risk see market risk
Normal distribution
A systematic, bell-shaped distribution which is completely characterized by two parameters, the mean (or expected value) and the standard deviation
Off-balance-sheet finance
Liabilities that are not required to be reported on a firm‘s balance sheet
Open account
An arrangement under which goods or services are sold to a customer on credit, but with no formal debt contract. Payment is due after an account is sent to the customer
Opportunity cost
The highest price or rate of return that would be provided by an alternative course of action. The opportunity cost of capital is the rate of return that could be earned on another investment with the same risk
Optimal capital structure
The capital structure which maximizes the value of a company
Option
A contract that confers the right but not the obligation to buy or sell underlying assets at a fixed price for a specified period
Option writer
The seller of an option contract
Ordinary annuity
Annuity where the first cash flow occurs at the end of the first period time
Ordinary perpetuity
Ordinary annuity where the payments continue for ever
Ordinary share
A share in the equity of a company that entitles the holder to proportion of distributed profits after any lenders and preference shareholders have been paid
Overdraft
A bank loan that permits borrowing up to a specified limit at the option of the borrower. Thus the amount owing increases or decreases, according to the borrower‘s requirements
Overnight loans
Loans which are callable, repayable or renegotiable by 11.00 a.m. the next day
Par value
The nominal or face value of a share or bond
Partnership
A business owned by two or more people acting as partners
Payback period
The time it takes for the total cash flows generated by an investment to equal the initial outlay
Perfect capital market
A frictionless market in which there are no taxes, not transaction costs, all relevant information is costlessly attributable to all participants and all participants are price takers
Perpetuity
An annuity with an infinite life
Preference share
A security that provides the holder with priority over ordinary shareholders in the receipt of dividends
Present value
Cash equivalent today of an amount to be paid or received at some future date
Price earning ratio
Share price divided by earnings per share
Primary asset ratio (PAR)
A prudential requirement of the Reserve Bank of Australia, whereby banks must maintain a minimum level of specified assets, which include liquid assets
Primary market
The market for new issues of securities where the proceeds go to the issuer of the securities
Prime rate
The interest rate at which banks lend to their most credit-worthy customers
Private issue
An issue of securities direct to chosen investors rather than the general public
Private placement
Issue of securities direct to chosen investors , rather than to the general public
Profitability index
An index used in investment evaluation, calculated by dividing the present value of the future net cash flows by the initial cash outlay
Promissory note
A security usually issued by a borrower for a term of 90, 120, or 180 days where the borrower unconditionally promises to pay the bearer a specified sum of money on an agreed date
Prospectus
A document that, among other things, provides details of the company and the terms of the issue of securities, which must be provided to potential investors by a company seeking to issue shares or other securities
Pure play
A company that operates almost entirely in only one industry or line of business
Put option
An option giving the holder the right to sell a specified asset at a specified exercise price within a specified time period
Quick ratio
Current assets minus inventories, divided by current liabilities
Real assets
Tangible assets and intangible assets used by a business
Real cash flow
A cash flow adjusted to remove the effects of inflation
Real interest rate
The interest rate, excluding the effects of inflation
Replacement assumption
Where a project is assumed to be replaced at the end of its economic life by an identical project
Required rate of return
The minimum rate of return necessary to justify undertaking an investment; also the cost of capital
Residual claim
A claim to profit or assets that remain after the entitlements of all other interested parties have been met
Residual value
The disposal value of the project‘s assets less any dismantling and removal costs associated with its termination
Restrictive covenant
A provision in a loan agreement to protect lenders interests by requiring certain action to be taken and others refrained from
Retained earnings
Earnings not distributed to shareholders as dividends
Return on assets
Earning before interest and tax, as a percentage of average assets invested
Return on equity
Earning after interest and tax , as a percentage of shareholders funds
Revolving credit facilities
Those which enable a borrower to draw on those facilities as the funds are required, provided it does not borrow more than the total agreed amount
Right
An option to purchase an additional share in a company by paying the subscription price
Right issue
An issue of new share to existing shareholders in proportion to their current shareholding
Risk
The uncertainty of future each cash flows. It is typically measured by the variance or standard deviation of the distribution of possible cash flows
Risk-adjusted discount rate
A required rate of return, adjusted for the risk associated with the project under consideration
Risk-averse investor
One who dislikes risk
Risk aversion
Dislike of risk on the part of investors. As a consequence, investors require compensation in the form of a higher expected rate of return
Risk-free interest rate
An interest rate that is certain to be paid. \in practice, the interest rate on assets such as government securities that are regarded as having no risk of default is often used as a proxy for the risk-free interest rate
Risk-neutral investor
One who neither likes nor dislikes risk
Risk premium
The difference between the expected return on a risky asset and the risk-free interest rate
Risk-seeking investor
One who prefers risk
Safety stock
Additional inventory held when demand is uncertain, to reduce the probability of a stockout
Secondary market
A market where previously issued securities are traded
Secured debt
Debt guaranteed by a pledge of assets or other collateral. In the event of default, the lender has first claim against the pledged asset
Security market line
The graphical representation of the capital asset pricing model
Sensitivity analysis
Analysis of the effect of changing one or more input variables to observe the effects on the results
Series of option
All contracts of the same class, having the same underlying asset, the same expiry date and the same exercise price
Shareholders
The owners of the company
Short hedge
The sale of a futures contract, to reduce risk
Short selling
The act of selling an asset not owned by the seller
Signaling
The process of revealing information through actions
Sole proprietorship
A business owned by one person
Spot rate
The rate for transactions for immediate delivery. In the case of foreign exchange, the spot rate is for settlement in two days
Standard deviation
Square root of the variance
Stock exchange
An organized market in which shares and other securities are traded by members of the exchange acting as brokers or principals. Traditionally such exchanges had a physical location or trading floor, where brokers met, but on many exchanges, including the Australian Stock Exchange, trading is now conducted from computer terminals in brokers‘ offices
Strike price see exercise (or strike) price
Subordinated debt
Debt which ranks below other debt in the event that a company is wound up
Subscription price
The price that must be paid to obtain a new share
Sunk cost
A cost that has already been incurred and is irrelevant to future decision making
Swap
An agreement to exchange one set of future cash flows for another. For example, in an interest rate swap, a ser of cash flows calculated using a fixed interest rate is exchanged for a set of cask flows calculated using a floating interest rate
Systematic (market-related or non-diversifiable) risk
That component of total risk that is due to economy-wide factors
Term loan
A loan requiring a schedule of repayments over a fixed period. Typically each repayment compromises principal and interest components
Term structure of interest rates
The relationship between yield and term to maturity for debt securities in the same risk class
Theoretical ex-right share price
The expected price of one share when they begin to be traded ex right
Theoretical rights price
The expected price of one right calculated on the basis of the cum-rights share price
Time value of money
A fundamental principle of finance which is that individuals prefer to receive a dollar today rather than a dollar in the future
Trade credit
Short term credit provided by suppliers of goods or services to other businesses
Trade-off theory
A theory which proposes that companies have an optimal capital structure based on a trade-off between the benefits and costs of using debt
Treasury stock
A US term for a company‘s own shares that have been repurchased and held rather than cancelled
Underwriting agreement
In a primary issue of a security, an agreement by an underwriting institution to purchase any securities not taken up by the public at the close issue
Unsubordinated debt
Debt which has not been subordinated (q.v.)
Unsystematic (diversifiable) risk
That component of total risk that is unique to the firm and may be eliminated by diversification
Utility
The amount of satisfaction that a consumer derives from consuming goods or services
Value additivity principle
The principle that present values can be summed. One application of this principle is taking the value of an entity to be equal to the sum of the value
of its component
Variance
A measure of variability; the mean of the squared deviations from the mean or expected
Weighted average cost of capital (WACC)
The average cost of capital for a company, calculated as a weighted average of the costs of the individual sources of finance
Withholding tax
In this context the tax deducted by a company from the dividend payable to a non-resident shareholder
Working capital
Current assets less current liabilities
Yield curve
A graph of yield to maturity against bond term at a given point in time
Yield to maturity
The internal rate of return on a bond
Zero coupon bond
A bond that provides only one cash flow, the payment at maturity
Acid test ratio
A ratio used to measure a company‘s immediate position or liquidity
All ordinaries Accumulation index
An index measuring the share price movements of a selection of major Australian companies listed on the Australian Stock Exchange (ASX) and incorporating the level of dividends payable as part of the growth in shareholder value of these companies
All ordinaries index
The main index of the ASX, summarizing movements in share values. This index incorporates and accounts for rises and falls in sub-indices of the niche market sectors
Arbitrage
The act of profiting from a price difference of the same security in differing markets
Ask
A seller‘s asking price for a stock
Assets
Everything owned by a company, such as plant and equipment
ASX
Australian Stock Exchange
At call
Funds that may be withdrawn at any time by an investor from an institution
At discretion
A term used to instruct a broker acting on an investor‘s behalf to buy and/or sell securities at price/s deemed reasonable by the stockbroker
At limit
The term used by investors instructing brokers not to buy or sell at a price either above or below a specified price
At market
The term used by investors to instruct brokers to buy or sell securities at the prevailing market price
At-the-money
The term referring to a put or call option form which the strike price is the same as the market price of the underlying instrument
Backdoor listing
A means of unlisted companies gaining listing status by taking control of an already listed company with few assets and market involvement. The already listed company is sometimes referred to as the ‗shell‖ Company
Bankruptcy
The financial situation in which an individual or a company is insolvent because all owned assets are insufficient to cover debt
Bear
A person who expects stock prices fall
Bear market
A falling market
Beta
A measure of share price movement in relation to the move in the market as a whole. For example, a company with a beta of 1 could be expected to follow the general movement of the market. A company with a beta of 1.5 means that a 10% move in the market could be expected to result in a 15% (10%*1.5) move in the share price of the company
Bid
The price a buyer is willing to pay
Bill of exchange
A written order which carries the name of a bank as acceptor or endorser and which required the person to whom it is addressed to pay a specified sum to the bearer of the bill on demand
Bond
A form of debt security issued by companies or government. The money received for bonds are treated as a loan by the issuing entity, and in return bond holders receive a yield or interest payment over a specified period and at either a fixed or floating rate. At maturity, bond holders receive their initial capital back. Bond prices generally fall when interest rated are rising and vice versa
Bonus issue
Additional shares generally issued on a pro-rata basis to existing shareholders. Bonus issues are a way for companies to return surplus cash back to investors
Bull
Person who believes the market will continue to go higher
Bull market
A rising market
Call option
A derivative giving the holder the right but not the obligation to purchase shares at a predetermined price before the expiry date
Capital gain
The profit made on the sale of an asset
Capital gains tax
Tax payable on capital gain
Capital loss
The financial loss on the sale of an asset
CHESS
Clearing House Electronic Sub register System. This systems an electronic record of shareholders. Share ownership is transferred electronically via CHESS when stocks are bought and sold
Company risk
The financial risk associated with a company, its management and its area of business operations
Consumer Price Index (CPI)
The main indicator of inflationary forces in the Australian economy. It is based on the aggregate price that consumers have to pay for a number of goods and services deemed as a ‗weighted representative basket‘ of goods applicable to the majority of consumers. The CPI has become the accepted measure of the cost of living over time
Contract note
A confirmation document detailing the nature of the transaction, price, stamp duty and brokerage fees
Contributing shares
Shares that are not fully paid. A company can call for all outstanding amounts on these shares to be paid. Shareholders may let these shares lapse rather than paying any outstanding amount
Conversion ratio
The ratio used to determine the number of ordinary shares that a convertible note or convertible bond can be exchanged into when it is exercised
Convertible note
A hybrid security that is essentially a loan made by an investor to a company. The investor receives a fixed yield in return on the investment for a stipulated period of time. At maturity the notes can be exercised into ordinary shares of the company at a pre-determined conversion price, or else the note holder can elect to convert the security into cash
Credit risk
The risk related to counter party failure
Current assets
Company assets that are expected to be [aid or sold within a year
Current liabilities
Company debts that are payable within a year
Current ratio
A sum used to determine the immediate fundamental position of a company
by dividing its current assets by its current liabilities
Cum dividend
The period immediately preceding the payment of a dividend in a listed company
Debenture
A loan made to a company for a fixed period of time at a fixed rate of interest
Debt-to-equity ratio
Debt as a percentage of shareholders‘ equity(borrowing8100=shareholders‘ equity)
Deflation
The stage at which the money supply is contracting to such an extent that one unit of currency purchases more goods and services than it did previously
Delta
An indicator showing the percentage that a derivative is expected to move resulting from share price movements in the underlying stock. For example, a delta of 10% means that if the share goes up 20c then the derivative should go up by 2c or 10%. The delta of warrants and options will change depending on the volatility of the stock and whether it is in-, at-, or out-of-the-money
Derivative
A financial instrument of which the price is based upon an underlying instrument such as a listed company‘ shares. It is valid for only a set period of time and has a strike price (see also call option and put option)
Dividend
Monetary distributions made by the company to shareholders (see also dividend reinvestment plan)
Dividend payout ratio
The value of dividends paid out to shareholders as a ratio of net income or profit made by the company
Dividend reinvestment plan(DRP)
A plan in which investors can elect to receive their dividend in the form of additional shares in the company rather than as a monetary dividend. See Chapter 4 to see how this is reflected on a CHESS statement. The monetary value of shares received via a DRP is regarded as taxable income in the same way that a monetary dividend paid out to shareholders is regarded
Dividend yield
The rate of return an investor could expect to receive on their investment in a company, expressed as a percentage of the share price at the time of the shares were purchased. A dividend yield is derived by dividing the cash dividend by the share price
Dog
A colloquial term for an underperforming stock
Dollar cost averaging
The method of investing by purchasing stocks in selected companies at periodic intervals and generally with fixed dollar amounts. Stocks are bought at these regular intervals regardless of the prevailing market conditions. The overall purchase price is determined by the average price paid for the stock
Due diligence
Investigation conducted by investors, companies and fund managers as part of the process of gaining a further understanding of a company and its operations in advance of either investing in it or attempting to gain control of it
Earning per share
The net profit divided by the total number of shares in the company
Earning before interest and tax (EBIT)
The profit of a company‘s operations before taking into account any interest payable or receivable, and before any tax is deducted from the profit
Ex dividend
The period immediately after the recorded date at which shareholders are entitled to receive the current dividend payable
Fixed assets
Items such as buildings, furniture, membership as long-term leases. Typically, these items are not intended for sale or disposal within a year
Floor broker
A member of an exchange who trades for his or her own personal account.
Franked dividend
A dividend that carries the right to an imputation credit
Fundamental analysis
An approach to investing that investigates an ongoing business concern by taking into consideration the company‘s balance sheet, profit and loss statement, the broader implications of the economic cycle, the ability of the company to continue improving its return on shareholders‘ equity, and its ability to remain viable.
Gamma
Measures the expected change in the delta given a change in the underlying instrument
Good-till-cancelled
The term used to instruct a stockbroker that they are to leave the order open until it is executed or cancelled
Index funds
Managed investment vehicles of which their portfolio typically mirrors a specified benchmark or index such as the ASX100 or ASX200. many index fund managers adopt a buy-and-hold approach
Initial public offering
The initial offer of shares in a company to retail and institutional investors on the primary market, in advance of the company‘s listing on the secondary market
Intangible assets
Goodwill, intellectual property, patents, trademarks and other similar company assets. The brand name Coca-Cola and its mysterious formula is perhaps the most famous example of an intangible asset
Inverted yield curve
The market condition when short-term interest rates are higher than long-term interest rates
JV
The official abbreviation for ‗joint venture‘, a term typically found in mining circles where two companies remain separate entities but combine workforce, management and equipment to conduct mining activity on a project
Liabilities
Debts to be repaid by a company, such as loans
Managed investments
Investment vehicles which pool together many investors funds and which are managed on the investors‘ behalf in accordance with the pre-determined objectives of the fund
Managed investment act 1998
An act introduced in 1998 as a new regulatory and accountability regime for the operation of managed investment. It replaced a system that differentiated between manager and trustee of the managed entity. The Act combines the functions of the manager and trustee under the term ‗Responsible Entity‘
`margin call
A demand made on borrowers by lenders for more funds in either cash and/or securities to restore the pre-determined margin loan ratio
MER
Every managed fund draws a management fee from its participants, typically called the MER. It is expressed as a percentage of the total funds under management
MSCI Index
The Morgan Stanley Capital International Indices are performance benchmarks for managed investments and index funds in Europe, \north
America, Australia and Asia. These indices comprise the largest companies from around the world
Prospectus
A document issued by a company intending to raise money from the public. It outlines various items, such as business interests, the amount sought from the public, and the company‘s estimates for profit/loss immediately after listing. The main purpose of such a document is to ensure that investors are able to make informed investment decisions regarding the prospects of the company
Qualitative analysis
A system of evaluating a company by using subjective factors such as goodwill, brand names(Coca-Cola, for example), management and company strategy and direction, rather than the hard and fast tangible assets as they appear on a balance sheet
Quantitative analysis
The ‗objective‘ method of evaluating company value based on tangible assets and mathematical formulas; using balance sheet numbers of determine a company‘s P/E ratio, dividend yield, EPS and NTA
Rally
The term given to a relatively strong rise in the market or an individual share
Redemption
The term used when an investor withdraws money from managed fund. It is the act of redeeming units held in a trust for cash
Return on equity (ROE)
A ratio measuring after-tax profit as a percentage of shareholders‘ equity.
After-tax profit/shareholders‘ equity*100
Rights issue
One way a company can raise further capital is to ask existing shareholders for additional funds via a rights issue. These are two types of tights issue: ‗renounceable‘------ which can be traded on the secondry market and ‗non-renounceable‘-----which cannot be traded on the secondary market, but has to be taken up by the existing shareholders or allowed to lapse upon expiry. The shares are issued in the company on a pro rata basis. For example, when a tights issue is registered on a one-for-four basis it means that for every four existing shares a shareholder currently holds they are entitled to buy one more in the rights issue. rights issues are registered with an expiry date before existing shareholder lose the opportunity to ‗take up‘ their ‗rights‘
Securities
Shares, debentures and bonds are example of securities
Shareholders‘ equity
What is actually owned by company shareholders. In simple terms it is the company‘s assets minus its liabilities
Stock Exchange Automated Trading System (SEATS)
The ASX computer system that provides brokers with immediate access to the market from any location
Trustee
The trustee of a unit trust holds trust assets on behalf of all the unit holders (see also Management Investment Act 1998)
Underwriter
The person or organization, such as stockbroking firm, which handles the new issue of securities. The underwriter agrees to purchase any unsold securities thus guaranteeing full subscription to the issue. Listed securities need not be underwritten before listing
Unit trust
A type of managed fund. In a unit trust, investors are issued units instead of shares. The value of each unit changes constantly based upon the fundamental and sentimental value placed on them. A trust does not pay tax
as such. All taxable income is distributed to the unit holders or investors. These people pay tax on their individual distribution at their own marginal tax rate. Capital gains tax is payable on any and all capital gains upon the sale of units in a unit trust
Unlisted security
A security in a company that is not listed on the ASX
Base
A chart pattern in which a stock traces specific price-and-volume action before it begins a major rally to new highs and huge profits for those who got shares at the correct buy point. Studies by IBD founder William O‘Neil and his research associates or the base-performing stocks from 1953 to 2003 show that these stocks typically from a base before launching the biggest phase of their price advance.
In a typical base, a stock makes a relatively mild decline in price or moves sideways for at least seven weeks (at least five weeks for a flat base) to as much as one year or more. Sound bases have a prior price uptrend of at least 30%. The most common base patterns are the cup with handle, cup without a handle, double bottom, flat base, base on base, and saucer.
For more information, visit the IBD \learning Center at www.investors.com and read ―New Price High Mean New Opportunities‖ and ―Chart Patterns Help You Spot The Right Time To Buy‖ in Course I. Also read pages 122 to 164 of ―How to Make Money in Stocks,‖ Third Edition, by William O‘Neil.
Break out
The moment when a high-quality stock surges out of a base on increased and usually heavy volume and surpasses the pivot point within a base. A strong breakout results in the stock‘s hitting new highs for a period of weeks or months, even years. For example, if a stock‘s pivot point is 33.10, the stock is breaking out when it rises to 33.10 and continues to go higher. (see pivot point.)
For more information, read pages 122 to 144 of ―How to Make Money in Stocks,‖ Third Edition, by William O‘Neil. Also, read lesson 9 (pages 43 to 49), ―How to Buy at Just the Right moment,‖ in ―24 Essential Lessons for Investment Success‖ by William O‘Neil.
CAN SLIMTM
The IBD acronym for the seven common characteristics all great performing stocks have before they make their biggest gains. You can significantly reduce your risk and increase returns by using the CAN SLIMTM investment research tool as a fact-based performance checklist to evaluate a stock before you buy.
C = Current earning per share, which should be up 25% or more in the last quarter versus the same period a year ago and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters.
A = annual earning, which should be up 25% or more in the last three years. Annual return on equity (net income divided by average shareholders‘ equity over the past two years) should be 17% or more, or the annual pretax profit margin should be 17% or more.
N = new product or service. A company should have a new product or service that‘s innovative and fueling earnings growth. The stock should be
emerging from a proper chart pattern and about to make a new high in price.
S = supply and demand. The number of shares outstanding can be large or small, but trading volume should be big at key points as the stock price increases.
L = Leader or laggard? Buy the leading stock in a leading industry. A stock‘s Relative Price Strength Rating should be 80 or higher. Its IBD Composite Rating should preferably be 90 or higher.
I = institutional sponsorship, which should be increasing, invest in stocks showing an increasing number of mutual fund owners in recent quarters and at least one or two of the better-performing growth-oriented mutual funds owning the stock. IBD‘s Accumulation/Distribution Rating gauges mutual fund activity in a stock.
M = the market indexes. The Dow, S&P 500 and Nasdaq should be in confirmed uptrend since three out of four stocks follow the market‘s overall trend.
Chart
A visual display of a stock‘s price-and-volume action. On investors.com, IBD provides two kinds of charts: (1) a daily chart, which shows a stock‘s intraday high, low and close and the share volume for each trading day; and (2) a weekly chart showing a weekly range of prices and the weekly close, as well as volume that week. For the days and weeks that a stock closes up in price, IBD charts paint both the price-range and volume bars in blue. Down days and down weeks and the corresponding volume bars are shown in red.
Composite Rating
An IBD SmartSelect Rating that combines all five IBD SmartSelect Ratings: EPS, RS, SMR, Industry Group RS, and Accumulation/Distribution. Of the five, EPS and RS get the most weight. The stock‘s price relative to its 52-week high is also factored in. Ratings range from 1 to 99, with 99 the best.
Cup-with-handle base
A commonly seen chart pattern among the best growth stocks just before such a stock begins its huge price run. From a conceptual point of view, it is primarily a product of professional investor opinion and psychology plus the everyday forces of supply and demand among millions of investors.
Key criteria of a good cup-and-handle base are following:
At least seven weeks in length.
A decline, frequently for five to seven weeks, that forms the left side of the cup and, in time, a rally off the low of the base to create the right side of the cup
Decline from the highest price in the base (simply known as ―the high‖) to the lowest price (or ―the bottom‖) running from 13% to 15% to as much as 40% during a bull market.
Large or increasing spikes in volume as the stock builds the cup‘s right side.
A downward-sloping handle (when measures along the lows of the price-range bars in the handle area). The handle forms in the upper half of the cup‘s overall price structure and must decline less in
price in proportion to the decline in the base. Taken together, the price action from the initial decline to the handle resembles the silhouette of a teacup viewed from its side.
For more information and actual examples of cup-with-handle patterns, read pages 124 to 131 and 154 to 161 of ―How to Make Money in Stocks,‖ third edition by William O‘Neil. IBD subscribers can access the IBD Archives at www.investors.com and read past ―Investor‘s Corner‖ columns explaining this important chart pattern, including ―Many Top Stocks Emerge From A Cup-With-Handle Base‖ (June 4,2004), ― Some Cup Bases Last For Months, But Can Be Well Worth The Wait‖ (June 7, 2004), and the columns published on these dates in 2003: May 14, 15, 23: Oct. 7: and Dec. 2, 5, 15.
DatagraphTM
A unique graphic format designed by William O‘Neil, founder of Investor’s Business Daily, to collect and analyze stock-related data needed to discover the biggest winners in the stock market. Each stock Datagraph is 10 inches long and 7.5 inches wide and contains 126 key pieces of data, 98 of which are related to company‘s fundamentals, and 28 are related to the stock‘s technical action. They include earnings per share, pretax margins and return on equity in each of the past nine years, earnings are revenue figures and year-over-year changes in the past 14 quarters, and the number of mutual funds that own the shares and total shares owned in the past 14 quarters. The Datagraphs are used by more than 400 of the top institutional investors around the world, including Merrill Lynch, J> P> Morgan, SwissRE, Wachovia Bank and the United Nations.
Distribution Day
The day when at least one of the major stock indexes (namely, the Nasdaq Composite, S&P 500, Dow) falls at least 0.5% on heavier trading volume than the previous session. The NYSE daily volume is monitored for changes in the S&P 500 and Dow. A series of three to five distribution days in just two to four weeks can signal the market is topping and that most stocks are likely headed for a decline. This is the time to consider selling some shares and keep watching for key sell signals by individual stocks.
For more information on distribution days, read pages 1 to 16 in ―The Successful Investor‖ by William O‘Neil and the ―Big Picture‖ column in IBD on daily basis.
Double-bottom base
A key chart pattern that many of the greatest stocks carve before breaking out to new highs and huge price gains. One a daily or weekly chart, the stock‘s lows resemble a W shape. Examples of big winners producing the double-bottom base include American \power Conversion (1989-90), Sun Microsystems (1999), Apollo Group (2000) and eBay (2002).
Key criteria include the following:
Two sell-offs, each over a few weeks‘ time, the second sell-off usually undercutting the first low.
A middle peak formed by an interim rebound in between the two sell-offs that fails to mark a new 52-week price high.
A decline from the base‘s high to low of anywhere from 12% to as much as 30% during a bull market.
The pivot point, or ideal buy point, is when the rally off the second bottom surpasses the peak of the interim rebound (or the middle part of the base) by at least 10 cents. In some cases, a handle forms after the stock makes a second low and then rallies back in price. Add 10 cents to the highest price within the handle to determine the pivot point, or ideal buy point.
For more information, read pages 132 to 133 and 162 to 163 of ―How to Make Money in Stocks, ―third edition, by William O‘Neil. Also, IBD subscribers can access ―Investor‘s Corner‖ columns on the double-bottom base at IBD Archives on www. Investors.com, including ―Some Outstanding Stocks Form A Double Bottom In A Weak Market,‖ (June 14, 2004), ― After A Healthy Rally, Snack Firm shot Out Of Double-Bottom Base‖(Dec. 8, 2003) and ―Cup, Saucer And Double-Bottom Patterns Often Reveal Symmetry‖ (Nov. 3, 2003).
Earning Per Share Rating (or EPS Rating)
A proprietary IBD rating that compares a company‘s last two quarters and last 3 to 5 years of earnings per share growth and stability with that of all other public companies. Ratings range from 1 to 99, with 99 the best. A 95 rating means a company‘s earning growth is superior to 95% off all stocks in the William O‘Neil + Co. Database.
An IBD study of the 95 top performing small-and mid-cap stocks from 1994 to 1997 found that the median EPS Rating at the beginning of these stocks‘ big rallies was 79. In the same study, the median EPS Rating among 25 top performing large-cap stocks (market cap of roughly $4 billion and higher) was 80.
Flat base
A chart pattern some great stocks from before breaking out and going on a run of new highs. The pattern must be a minimum of five weeks in length, and it does not fall more than 15% from the base‘s peak to trough. The stock‘s flat-looking sideways action indicates that institutional investors are not eager to sell shares. It often shows up when the major market indexes are struggling to move higher.
For example of the flat base, read pages 133 to 134 in ― How to Make Money in Stocks,‖ Third Edition, by William O‘Neil. Also, IBD subscribers can access |Investor‘s Corner‖ columns on the flat base at IBD Archives on www.investors.com, including ―Flat-Base Patterns Can Lead To Exciting Stock breakouts‖ (June 9, 2004) and ―Flat Bases Help Solid Stocks Further Inflate Their Gains‖ (May 16, 2003).
Follow-through
A confirmation that the general market has begun a potentially significant new uptrend. This uptrend can be seen specifically when at least one major index (namely, the Nasdaq composite, S&P 500, Dow) rises about 1.7% or more on heavier volume than the previous session, usually in the 4th to 10th day of a new rally is attempt. Not all follow-throughs guarantee that a major new rally is taking place, but every major market bottom since 1900 has featured one.
For more information on follow-through days, read pages 1 to 16 in ―The Successful Investor‖ by William O‘Neil and the ―Big Picture‖ column in IBD on a daily basis. Also, IBD subscribers can access ―Investor‘s Corner‖
columns on the Follow-Through by going to IBD Archives at investors.com, including ―Follow _through On Oct. 15,2002, Launched The Latest Bull Market‖ (Dec.22, 2003) and ―March 17 Follow-Through Launched A Fleet Of Breakouts‖ (Dec. 24, 2003).
Handle
A period of stock action, generally between one week and up to six to eight weeks, that occurs toward the end of a cup, double-bottom or saucer pattern. In the handle, the stock trades in a tight price range near its 52-week high and drifts downward along the lows of its price-range bars on quiet volume.
A handle forms as nervous, disgruntled or uncommitted shareholders sell their shares and exit the stock. Those shares go into the hands of sturdier investors who are committed to holding the stock for the long term. The handle-forming process normally creates a shakeout of some weaker holders and clears the decks for a new rally by the stock. It also defines the correct buy point, or the pivot point. Add 10 cents to the highest price in the handle to get most pivot points.
For more information, read pages 124 to 129 of How to Make Money in Stocks,‖ Third Edition , by William O‘Neil, as well as pages 45 to 49 in ―24 Essential Lessons for Investment Success,‖ also by William O‘ Neil. Also, IBD subscribers can access ― Investor‘s Corner‖ columns on proper and improper handles at IBD Archives including ―Handle Should Slant Downward‖ (OCT. 31, 2002), ―Some Handles Feature Shakeouts‖ (Nov. 5, 2002), ―Many Great Stocks Form A Handle Before Breaking Out‖ (March 19, 2003) and ―Solid Handles Form in The Upper Half Of A Good Base‖ (March 21, 2003).
Pivot point
The price a stock must go through in order to stage a sound breakout. When a stock goes through the pivot, it indicates an unusually high level of demand for shares by institutional and individual investors. This strong demand fuels a great stock‘s run to new high and double to triple –digit percentage gains as long as the stock base was formed in a sound and correct way. The stock‘s fundamentals (sales growth, earnings growth, return on equity and margins) must also be strong and among the best in the industry.
The pivot point for the base patterns are the following:
Cup with handle: 10 cents above the highest price within the handle.
Cup without handle: In general, 10 cents above the highest price on the cup‘s left side.
Double bottom: 10 cents above the middle peak. If the double-bottom base also has a handle, then the pivot is 10 cents above the handle‘s high.
Flat base: 10 cents above the highest price in the base.
Saucer with handle: 10 cents above the handle‘s high.
For more information, go through Course 1 in the IBD Learning Center at www.investors.com. Also read Chapter 12 in ― How to Make Money in Stocks,‖ Third Edition , by William O‘Neil.
Relative Price Strength Rating (or RS Rating)
A proprietary IBD rating that compares a stock‘s price change in the past 12 months with all other stocks in the William O‘Neil + Co. Database.
Ratings range from 1 to 99, with 99 the best. A 95 RS Rating means a stock has outperformed 95 % of all stocks over the past 12 months.
Generally, the strongest stocks in the market already have an RS Rating of at least 80 before they make the biggest part of their upward price moves. A study of the 95 top performing small and mid-cap stocks from 1994 to 1997 found that the median RS Rating at the begging of these stocks‘ big rallies was 84. In the same study, the median EPS Rating among 25 top performing large-cap stocks (market cap of roughly $4 billion and higher) was 73.
Relative strength line (or RS line)
A line that plots a stock‘s price performance versus that of the S&P 500 large-cap index. When the line rises, the stock is outperforming the market. When if falls, the stock is underperforming. The RS line can be found on all daily and weekly charts in Investor’s Business Daily’s ―Daily Online‖ and investors.com. Studies of the biggest stock market winners from 1953 to 2001 show that the RS line climbs to new high ground before or at the same time a great stock breaks out of a solid base and vaults to new price highs.
Saucer base
A chart pattern seen among some of the best stock market winners. It resembles the cup with handle, but it tends to be at least several months to over a year in length. The base‘s slow, steady decline and slow rise within the base resembles the silhouette of a saucer viewed from the side. Example of stocks that formed saucer bases include Bank of America (BOA) from June 1994 to December 1995, Coca-Cola (KO) from June 1992 to March 1995 and Carbo Ceramics (CRR) from April2002 to December 2003.
For more information on the saucer, read the ―Investor‘s Corner‖ column ―Saucer Base Wears Out Shareholders Before The Breakout‖ (June 11, 2004) and other columns on the saucer, available to IBD subscribers in the IBD Archives on www.investors.com.
Shakeout + 3
A chart pattern seen among some of the best stock market winners, including Cisco Systems in October 1990. For a stock whose price is trading in the $20 to $30 range, a shakeout + 3 begins when it first falls to a low of , say, $22. After rebounding in price for a few weeks, the stock then suffers a second sell-off and undercuts the first low. If the market is in the early stages of a new rally, watch to see if the stock rebounds and rises $3 above the first low of $22 level is the pivot point, or ideal buy point.
Amex
The American Stock Exchange, located in New York City. Its lines of business include stocks, stock options, and exchange-traded funds (ETFs). This exchange, which offers many products through its trading floor, is the only exchange that is not wholly electronic that announced intention to offer security futures. As of press time, it has not released contract specifications or a list of possible security futures products.
Arbitrage
The simultaneous purchase of an asset in one market and the sale of a comparable asset in another market in order to profit from discrepancies in usual price relationships. See also spread.
Ask price
The price at which a seller will sell.
Associated person (AP)
One who solicits orders, customers, or customer funds for a futures commission merchant, an introducing broker a commodity trading advisor,
or a commodity pool operator and who is registered with the Commodity Futures Trading Commission.
At the money
An option whose strike price equals, or approximately equals, the current market price of the underlying asset.
Back month
Traded contract month of a futures contract that is furthest from expiration. Also referred to as deferred months. See also contract month, front month.
Basis
The difference between the price of the futures contract and the cash or spot price. (Unless otherwise specified, the price of the nearest contract month is used to calculate basis.)
Bear market/bear/bearish
A market in which prices are declining. A market participant who expects prices to move lower is called a bear. An event is considered bearish if it is expected to produce lower prices.
Best execution
A requirement that broker and others execute customer orders at the best available price in the shortest amount of time.
Bid
An offer to buy a financial instrument at a stated price.
Bid/ask spread
The price difference between the current highest offer to buy and the current lowest offer to sell.
Break
A quick and steep price decline.
Breakaway gap
A gap in prices that indicates the end of a trend and the beginning of a critical market move.
Broad-based index futures
Futures contracts whose underlying asset is a broad-based index generally consisting of ten or more securities and does not fall under the definition of a narrow-based index. They are not considered to be security futures products, so they are regulated soley by the Commodity Futures Trading Commission. See also Stock index, Narrow-based index futures.
Broker
A person who is paid a fee or commission for acting as an agent in making contracts or sales. More specifically, the term may refer to (1) a floor broker, who executes orders on the trading floor or an exchange, (2) an associated person account executive, who deals with customers and their orders at a broker/dealer, futures commission merchant, or introducing broker, or (3) a broker/dealer, futures commission merchant, or introducing broker.
Broker/dealer (B/D)
An individual or firm, paid a fee or commission, that acts as an agent between buyer and seller, and may also be in the business of buying and selling securities for his or her own or the firm‘s account.
Brokerage fee
The charge for executing a transaction. The charge may be per transaction or a percentage of the total value of the transaction. Also known as a commission fee.
Browser-based systems
Trading systems that provide a series of web pages that allow you to enter orders, view working orders, get quotes, and so on.
Bull market/bull/bullish
A market in which prices are rising. A market participant who expects prices to move higher is called a bull. An event is considered bullish if it is expected to move prices higher.
Buy or sell on open or close
To buy or sell at the beginning or end of the trading day.
Calendar spread
The simultaneous purchases of one contract month and sale of another contract month for the same instrument on the same exchange.
Call (option)
In options, a contract that gives a buyer the right, but not the obligation, to purchase a particular futures contract or security at a stated price on or before a stated date. Buyers of call options generally hope to profit from an increase in the price of the underlying asset.
Carrying charges
Costs incurred in holding a physical commodity or financial instrument: these generally include interest, insurance, and shortage.
Cash commodity
The physical commodity, as distinguished from futures contracts. Also known as actuals.
Cash settlement
The receipt of money instead of the underlying commodity to fulfill the delivery requirements of the futures contract. The amount of money is based on the daily settlement price of the underlying commodity.
Charting
In technical analysis, the use of charts and graphs to plot price trends, average movements of price and volume, and open interest. See technical analysis.
Clearing
The method by which trades are reviewed for accuracy. After trades are validated, the clearinghouse or association becomes the buyer to each seller and the seller to each buyer. Through this procedure, a clearinghouse keeps records of all trades and resulting positions, ensures performance on those positions, and facilitates the daily passthrough of profits and losses via a mark-to-market process.
Clearing member
A member of a clearinghouse or an association. All trades of a nonclearing member must be settled through a clearing member.
Clearinghouse
An agency connected with an exchange through which all futures contracts are made, offset, and fulfilled by physical delivery or cash settlement.
Close
The end of the trading session designated by the exchange, during which all transactions are considered to be made ―at the close‖
Commission
The fee a broker charges a customer for completion of a certain duty, such as the buying or selling of futures contracts.
Commodity
A unit of trade or commerce, services, or tights on which futures contracts may be traded. Commodities may include, but are not limited to, agricultural products, financial instruments, foreign currencies, indexes, and metals.
Commodity exchange act
The federal act that provides for federal regulation of futures trading and is the mandate for the Commodity Futures Trading Commission.
Commodity Futures Modernization Act (CFMA)
The act, passed in December 2000, that amends the Commodity Exchange Act and legalizes the trading of security futures products, including single stock futures.
Commodity Futures Trading Commission (CFTC)
A commission set up by Congress through the Commodity Exchange Act to oversee the futures industry.
Commodity pool
A venture in which assets contributed by a number of persons are collected for the purpose of trading futures contracts and/or options on futures. Not the same as a joint account.
Commodity pool operator (CPO)
An individual or firm, generally required to be registered with the commodity Futures Trading Commission, that operates or solicits funds, securities, or property for a commodity pool. According to the NFA,
registration is required unless the total gross capital contributions to all pools are less than $200,000 and there are no more than 15 participants in any one pool.
Commodity trading adviser (CTA)
An individual or firm that trades for commodity pools and/or individual clients. A CTA may also issue analysis or reports on commodities and advise others on trading in commodity futures, options, or leverage contracts.
Common stock
A class of securities representing ownership in a company whose value may appreciate or depreciate. Owners of this type of stock may also receive dividends, but only after preferred stockholders, if any, receive them. See preferred stock.
Consolidation
A break in trading activity during which prices move sideways. Traders often assess their positions during periods of consolidation.
Contract
A term describing a unit of trading for a commodity.
Contract month
The month in which a contract is to be settled, either physically or monetarily, in accordance with the futures contract.
Contract size
The quantity of the underlying asset represented by a futures contract.
Corporate actions/events
Changes in the structure of a corporation or in the price and/or quantity or a corporation‘s stock. These changes may be caused by stock splits, stock consolidation, special dividends, and spin-offs. Exchanges adjust security futures contracts to reflect these changes.
Cover
See offset.
Current delivery (month)
The futures contract that will expire and must be settled during the current month: also called spot month.
Customer segregated funds
See segregated account.
Day order
An order that expires automatically at the end of the trading session on the day it was entered if it is not executed.
Day traders
Traders who establish and liquidate positions in one trading day, leaving then with no open positions. They are generally members of the exchange and active on the trading floor.
Debt balance
The state of a customer‘s account when the trading losses exceed the amount of equity.
Default
In futures markets, the failure to carry out a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.
Deferred month
The more distant delivery months in which futures trading is taking place, as distinguished from the nearby delivery months.
Delivery
In settlement of a futures contract, the tender and receipt of an actual commodity or other negotiable instrument covering that commodity.
Delivery month
The clearing month during which a futures contract may be settled and becomes deliverable. See contract month.
Delivery notice
A clearinghouse notice of a seller‘s intention to deliver the physical commodity against a short futures position.
Delivery price
The official settlement price of the trading session during which the buyer of futures contracts receives delivery notice of the seller‘s intention to deliver and the price the buyer must pay for the underlying stock on which
it is based.
Discount
(1) A description of the futures contract price when it is less than the cash price of the underlying asset. For example, this single stock futures contract trades at a discount to its underlying stock. See also Parity, Premium. (2) A reduction in the expected price of a financial instrument produced by various factors.
Discretionary account
An arrangement by which an account holder authorizes another person, often a broker, to make buying and selling decisions without notification to the holder: often referred to as a managed account or controlled account.
Dividend
A corporation‘s payment to its stockholders.
Downtick
A situation in which a financial instrument sells for less than its previous transaction price. In securities markets, the ―uptick rule‖ currently prevents the short sale of stock on a downtick. See Uptick.
Downtrend
A price trend involving a series of lower highs and lower lows.
Electronic trading
Computerized trading through an automated order entry and matching system.
Equity
(1) in a futures account, the dollar value if all open positions were offset at the current market price. (2) in a securities margin account, the excess of the market value of securities over debit balances. (3) the ownership interest of a company‘s stockholders.
Euronext.liffe
The derivatives business of Euronext, which also trades universal stock futures, the exchange‘s name for single stock futures.
Exchange
An association engaged in the business of buying and selling financial instruments.
Exchange-traded fund (ETF)
A basket of securities designed to track an index while trading like a stock. For example, OneChicago‘s DIAMONDS contract is a future on the DIAMONDS ETF, which tracks the Dow Jones Industrial Average.
Exercise
In options trading, choosing to accept the underlying asset at the strike price.
Exercise price
The price at which the buyer of a call (put) option may choose to exercise his or her right to buy (sell) the underlying asset. Also called strike price.
Expiration cycle
A term describing the quarterly expiration dates applicable to derivatives. Three commonly used cycles are January/April/October, February/May/August/November, and March/June/September/December.
Expiration date
(1) The last date on which an option may be exercised. (2) A term used for the last trading day of a futures contract, although futures contracts technically do not expire because they must be either offset or performed.
Fair market value
For single stock futures, the theoretical value of the futures contract on a stock. In theory, the price of a single stock futures contract should equal the value of the underlying stock plus the interest rate less dividends, calculated over the life of the futures contract.
Fibonacci number or sequence of numbers
A sequence of numbers identified by the Italian mathematician Leonardo de Pice in the thirteen century. It is the mathematical basis of the Elliott wave theory, where the first two numbers of the sequence are 0 and 1 and each successive number is the sum of the previous two numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233 . . . ).
Fill or kill order (FOK)
A limit order on which sellers can notify buyers, via the clearinghouse, of their intention to deliver cash commodities against futures contracts and on which buyers can receive notification.
First notice day
The first day on which sellers can notify buyers, via the clearinghouse, of their intention to deliver cash commodities against futures contracts and on which buyers can receive notification.
Floor broker
One who executes orders on an exchange‘s trading floor for someone else.
Floor trader
Exchange members who are personally present on the trading floors to make trades for themselves and their customers. Also referred to as scalpers or locals.
Forward contract
A privately negotiated agreement, common in many industries, to complete a transaction time in the future, at a price often negotiated in the present.
Forward curve
The price of a series of futures contracts throughout several months.
Front month
The traded contract month of a futures contract that is closest to maturity. Also referred to as the nearby month or nearby. See also Back months and Contract month.
Fundamental analysis
The examination of the underlying factors that will affect the supply and demand of and demand for the underlying assets. See also technical analysis.
Futures commission merchant (FCM)
An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to pay for such orders. The individual or organization must be registered with the Commodity Futures Trading Commission.
Futures contract
A standardized agreement to buy or sell a specified quantity of a commodity or financial instrument during a specified month in the future that can be traded only by public auction on designated exchanges.
Gap
A price range on a chart where no trading takes place from one day to the next.
Good till canceled
An order that stands until it is cancelled or filled or until the contract expires.
Guided account
An account that is part of a program directed by a commodity trading adviser (CTA) or futures commission merchant (FCM). The CTA or FCM advises the customer to enter and/or liquidate specific positions, but the customer must give final approval to enter the order. These programs generally require a minimum initial investment and may include a trading strategy that will draw on only a part of the investment at any given time.
Head and shoulders
A chart formation representing three successive rallies and reactions, where the second rally, or head, reaches a point than the other two rallies. It usually indicates a major market reversal.
Hedging
The sale (purchase) of futures contracts in anticipation of future sales (purchases) of the underlying asset as a protection against possible price declines (increases).
Index
A group of securities whose calculated price is intended to represent economic trends. An index may be designed to track changes in the overall economy, the stock market, or a sector of the stock market, such as pharmaceuticals or technology.
Indexation
An investment strategy designed to mimic the price movement of an index or of a particular basket of securities.
Initial margin
A customer‘s funds required at the time a futures position is established or an option is sold to ensure that the customer carries out the contractual obligations. Margin in futures is not a down payment, as it is in securities. See also Margin.
In the money
A call option with a strike price below, or a put option with a strike price above, the current market price of the underlying asset.
Intrinsic value
The value of an option if it were to expire immediately.
Introducing broker (IB)
A firm or individual that solicits and accepts commodity futures orders from customers but does not accept money or other assets from customers. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through a FCM on a fully disclosed basis.
Inverted curve
A market state in which the price of a security futures contract is below the price of the security, or at a discount to the security.
Inverted market
A futures market in which the nearby month sell at a premium to the more distant months: generally occurs in a market where there is a supply shortage.
Island Futures Exchange (Recently renamed INET Futures Exchange
An affiliate of INET, that has been approved to offer security futures products. As of press time the exchange had not released contract specifications or a list of security futures products to be offered.
Lagging indicators
Market indicators that confirm or deny the trend indicated by the leading indicators. Also referred to as concurrent indicators.
Last trading day
The day on which trading or the current delivery month ends.
Leading indicators
Major market indicators that suggest the economic state for the coming months. Some leading indicators include index of consumer expectations, change in material prices, prices of stocks, and change in the money supply.
Leverage
A characteristic of a financial instrument that allows an investor to establish a position with funds that are less than the value of the financial instrument.
Life of contract
The time during which a contract trades, from the day it begins trading to the expiration of trading in the delivery month.
Limit
See Position limit, Price limit, Reporting limit, Variable limit.
Limit move
The maximum price movement allowed during one trading session, as designed by the rules of a contract market.
Limit order
An order in which the customer sets a limit on either price, time of execution, or both, unlike a market order, which should be filled at the most favorable price as soon as possible.
Liquidation
The purchase or sale of futures contracts, of the same quantity and delivery month as contracts sold or purchased earlier, to offset the obligation to make or take delivery.
Liquidity
A characteristic of a market in which buying and selling can be accomplished without dramatically affecting prices and in which bid/offer price spreads are narrow.
Long
An individual who has purchased a financial instrument, in contrast to a short, who has sold a financial instrument.
Long hedge
The act of buying futures contracts to protect against possible price increases in the underlying asset. See also Hedging.
Lot
A term for one futures contract. Also describes a number of futures contracts---- for example, a 5-lot purchase of Microsoft single stock futures contracts.
Maintenance margin
The amount of money that must be maintained in an account while a futures position is open. If the equity in a customer‘s account drops under the maintenance margin level, the broker must issue a margin call to the customer, asking for money to restore the customer‘s equity in the account to the required minimum level. See also Margin.
Margin
(1) In the futures industry, an amount of money deposited by futures traders to ensure performance against the contract: it is not a down payment. Also referred to as a performance bond. (2) In the securities industry, a deposit made to a broker/dealer by a securities trader to buy or sell securities. When traders are buying securities, the margin is considered a down payment.
Margin call
A call from a brokerage firm to a customer asking the customer to deposit additional funds so that the equity returns to the minimum level required by exchange regulations: similarly, a call from a clearinghouse to a clearing member firm asking the firm to make additional deposits to return clearing margins to the minimum level required by clearinghouse rules.
Mark to market
The daily adjustment of accounts and margin requirements to settle daily gains and losses in each open position at the end of each trading day.
Market if touched
A price order that becomes a market order when the financial instrument trades at a designated price at least once.
Market maker
An exchange member who improves market liquidity by placing bids and offers for his or her own account in the absence of or in addition to public buy and sell orders.
Market order
An order that is to be filled at the best possible price and as soon as possible, unlike a limit order, which may specify requirements for price or time of execution. See also Limit order.
Matched-pair trade
A strategy in which one would purchase and sell two different stocks within the same industry, but generally in the same contract month. For example, one could buy the strong stock, sell the weak stock, and profit from the difference.
Maturity
The time between the first notice day and the last trading day of a commodity futures contract. During this time, the contract must be settled either by delivery or by cash.
Maximum Price Fluctuation
See Limit move.
MEFF
The Spanish futures and options exchange that trades single stock futures.
Minimum Price Fluctuation
See Point.
Misrepresentation
An untrue or misleading statement about a material fact upon which a customer based an investment.
Momentum indicator
A line plotted to show the difference between today‘s price and the price a fixed number of days ago. For example, momentum can be measured as the difference between today‘s price and the current value of a moving average.
Often referred to as a momentum oscillator.
Moving average
A form of technical analysis that smoothes price and volume by averaging selected prices. It emphasizes the direction of a trend and confirms trend reversals.
Narrow-based index futures
Security futures products whose underlying asset is a narrow-based index, which has any one of the four following characteristics, in general, and subject to certain exclusions: (1) it has nine or fewer component securities; (2) any one of its component securities comprises more than 30% of its weighting; (3) the five highest weighted component securities together comprise more than 60% of its weighting; or (4) the lowest weighted component securities comprising, in the aggregate, 25% of the index‘s weighting have an aggregate dollar value of average daily trading volume of less than $50 million (or The Complete Guide To Single Stock Futures (Russel Wasendorf, SR. Elizabeth Thompson) Book no. 23in the case of an index with 15 or more component securities, $30 million). Also commonly referred to as narrow-based indexes or NBIs.
NQLX
A wholly electronic security futures exchange that was originally a joint-venture operated by NASDAQ and Euronext.liffe, it is located in the United States.
National Association of Securities Dealers (NASD)
The self-regulatory organization of the securities industry
National Futures Association (NFA)
The self-regulatory organization of the futures industry.
Nearby month
See Front month.
Net position
The difference between the open long (buy) contracts and the open short (sell) contracts in any one futures contract month or in all months combined.
Nominal price
Declared price, usually an average of bid and ask prices, for a futures month. It is sometimes used in place of a closing price when no recent trading has taken place in that delivery month.
Notice day
See Front day.
Notice of delivery
See Delivery notice.
National value
The face value, normally expressed is U.S. dollars, of the underlying asset of a futures contract.
Offer
A sign of willingness to sell at a stated price—the opposite of bid
Offset
Closing an open position through the purchase (sale) of an equal number of futures contracts of the same delivery months. This turns over the contractual obligations to someone else.
OneChicago
The joint-venture security futures exchange operated by Chicago Mercantile Exchange, Chicago Board of Trade, and Chicago Board Options Exchange.
Open
The time at the beginning of the trading session officially defined by the exchange during which all trades are considered to be made ―at the open‖.
Open interest
The sum of futures contracts that have not yet been offset or carried out by delivery.
Open outcry
A system of public auction for making bids and offers on trading floors.
Open trade equity
The potential gain or loss on open positions.
Option (option contract)
A one-sided contract that gives the buyer the tight, but not the obligation, to buy or sell a stated quantity of the underlying asset at a stated price within a designated time period, no matter what the market price of the underlying asset may be. The seller of the option has the obligation to buy the stated quantity of the underlying asset from the option buyer or to sell it to the option buyer at the exercise price it the option is exercised. See also Call (option), Put (option).
Option premium
The price of an options contract.
Option seller
See Writer.
Options Clearing Corporation
A clearinghouse for several U.S. markets and an issuer of all listed option contracts that are trading on national option exchanges.
Order execution
The management of a customer‘s order by a broker, including receiving the order, transmitting it to the trading floor or trading platform of the appropriate exchange, and returning confirmation (fill price) of the completed order to the customer.
Orders
See Limit order, Market order, Stop order.
Original margin
The initial deposit of margin money required of clearing member firms by clearinghouse rules, similar to the initial margin deposit required of customers.
Out of the money
A put option with a strike price below or a call option with a strike price above the current market value of the underlying asset.
Overbought
A view that the market price has risen too sharply and too quickly relative to underlying fundamental factors.
Oversold
A view that the market price has declined too sharply and too quickly relative to underlying fundamental factors.
Par
The face value of the security.
Parity
A description of the price relationship between a futures contract and its underlying asset when they are trading at the same price.
Performance bond
See Margin.
Physical settlement
The process of fulfilling a futures contract at the expiration date by delivering the underlying asset. A single stock futures contract‘s underlying asset is usually 100 shares of the stock.
Pit
A recessed area on the trading floor of some exchanges in which open-outcry futures or options trading takes place. Some exchanges have rings instead of pits.
Point
The minimum price movement for a futures contract.
Point-and-figure chart
A graph of prices charted with x‘s for rising prices and o‘s for declining prices; used to reveal buy and sell signals.
Point balance
A computation of official closing or settlement prices provided in a statement prepared by futures commission merchants to show profit or loss on all open contracts.
Position
An individual‘s standing in a market. For example, a buyer has long position and, conversely, a seller has a short position.
Position limit
The maximum number of security futures contracts any trader can hold in a position as designated by the Commodity Futures Trading Commission.
Position trader
A securities, futures, or options trader who maintains positions for an extended time period, in contract to a day trader, who will normally initiate and close positions within a single trading session.
Preferred stock
A security that generally pays a fixed dividend and that gives the holder claims to corporate earnings and assets that surpass those of the holders of common stock. See also Common stock.
Premium
(1) In price relationships between different delivery months of futures contracts or between a futures contract and its underlying asset, one trades at a premium over another when its price is greater than that of the other. (2) The price paid for an option.
Price delivery
The economic function provided by futures markets in determining cash market prices.
Price limit
The maximum price fluctuation, up or down, from the previous day‘s settlement price that is allowed for a commodity during one trading session. This limit is set by exchange rules.
Purchase and sale statement (P&S)
A statement that customer receives when a position has been liquidated or offset. The statement lists the quantity of contracts traded, the gross profit or loss, the commission charges, and the net profit or loss.
Put (option)
In options, a contract that gives a buyer the right, but not the obligation, to sell the underlying asset at a certain price on or before a certain date.
Quotation
The actual price or the bid or ask price of cash commodities, stocks, futures contracts, or options contracts at a specific time.
Rally
An upward movement of prices after a downward movement
Rally top
The price at which a rally stops. A bull move will usually hit many rally tops over its market span.
Range
The difference between the high and low price, generally during a single trading session.
Reaction
A short-term price movement against a current trend.
Recovery
See Rally.
Registered commodity representative
See Associated person (AP), Broker.
Registered representative
An employee of a broker/dealer who solicits its business, gives securities trading advice, and receives a percentage of commissions.
Regulation T
A rule of the Federal Reserve Board that limits the amount of credit that broker/dealers can extend to customers to enable them to purchase and carry securities.
Reporting limit
Sizes of positions for which commodity traders are required to make daily reports to the exchange and/or the CFTC. The sizes of reportable positions are designed by the exchange and/or by the CFTC. Daily reports include the size of the position by commodity, delivery month, and the purpose of trading, i.e., speculative or hedging.
Resistance
The price level at which bullish prices stop rising. It is the opposite of support.
Retender
The right of the holders of futures contracts who have received a delivery notice from the clearinghouse to offer the notice for sale on the open market, voiding their contractual obligation to take delivery; the
opportunity to retender is restricted to certain commodities and periods of time.
Retracement
A price movement in the opposite direction from the main trend.
Return
The percentage profit that one gains, or might gain, on an investment.
Ring
A round space on an exchange trading floor in which traders and brokers stand and execute futures or options trades. Some exchanges have pits instead of rings.
Risk disclosure statement
A statement sent out to potential futures traders that they must read and sign; by doing so, they acknowledge that they understand the risks involved in trading futures.
Roll forward
Liquidation of a position in a nearby month, followed by the purchase or sale of a distant contract month to transfer the long or short position. Also called a rollover.
Round turn
The combination of a purchase (sale) of futures contracts and the offsetting sale (purchase) of an equal amount of futures contracts with the same delivery month. Also known as a round trip.
Scalper
A speculator on an exchange trading floor who buys and sells rapidly for small profits and losses and holds positions for only a short time during a trading session.
Securities
Common stocks, preferred stocks, corporate bonds, and government bonds.
Security deposit
See Margin.
Securities and Exchange Commission (SEC)
The government-created commission that oversees the entire securities industry, including self-regulatory organizations like the NASD. It regulates security futures jointly with the CFTC.
Security futures principal
The designated supervisor accountable for the security futures business at a broker/dealer, futures commission merchant, or introducing broker.
Security futures product
A futures contract based on a single security or a narrow-based group of securities. See Narrow-based index futures, Single stock future.
Segregated account
An account that holds a customer‘s assets and separates them from the broker‘s or firm‘s assets.
Settlement
See Cash settlement, Physical settlement.
Settlement day
The designated day on which buyer and seller fulfill their contract through either final cash settlement or physical delivery.
Settlement price
The closing price or a price within the range of closing prices, as determined by the exchange, that is used to calculate net gains or losses at the official end of each trading day.
Shad- Johnson accord
An agreement between the CFTC and SEC to ban the trading of narrow-based stock index futures and single stock futures.
Short
An individual who has sold a security or a futures contract; a long, in contract, has purchased a security or futures contract.
Short hedge
The sale of futures to protect against a possible decline in the price of the underlying asset. See also Hedging.
Short sale
In stocks, borrowing shares and then selling them, with the requirement to repurchase them at a later date. Selling short is a bearish strategy.
Short-term capital gains rate
The tax rate applied to trading profits on assets held for a year or less.
Side
Each contract has two sides---- the buy action and the sell action. Two sides equal one round turn.
Sideways trend
A movement in price that does not go above or below certain levels.
Single stock future
A security futures contract based on an individual stock.
Speculator
A market participant who tries to forecast price changes and make profits through the sale and/or purchase of futures contracts. A speculator with a bullish price forecast tries to profit by purchasing futures contracts and then closing his or her long position with a later sale of an equal number of futures of the same delivery month at a higher price. A speculator with a bearish price forecast tries to profit by selling futures contracts and then covering his or her short position with a later purchase of futures at a lower price.
Spot
Usually, the cash price for a product available for immediate delivery. Also refers to the nearest contract month for delivery.
Spot commodity
See Cash Commodity.
Spread
(1) The simultaneous purchase of one futures contract and sale of another in order to profit from the variations in price relationships between the two contracts. Several versions of a spread include the purchase of one contract month and the sale of another contract month of the same commodity; the purchase of one contract month of one commodity and the sale of the same contract month of a similar, but different, commodity; or the purchase of a commodity in one market and the sale of the same commodity in another market. (2) The price difference between two similar markets or trading instruments. See also Arbitrage.
Stand-alone system
A trading program that you download directly onto your computer.
Stock
A percentage of ownership in a company. Stock ownership entitles one to be involved in the company‘s growth and decline, to receive dividends as declared by the company‘s board of directors, to choose members of the board of directors, and to participate in corporate actions as determined by law.
Stock index
An indicator that measures price changes in a specific group of stocks or tracks the overall market. Indexes vary based on their composition, the sampling of stocks, the weighting of individual stocks, and the method of averaging used to establish the index.
Stock future
See Security futures product.
Stock split
The division of stock into a larger number of shares that are worth less. For example, a 2-for-1 stock split would create twice the number of shares, but these shares would be worth half the price. A reverse split creates a smaller number of shares that are worth more.
Stop loss
A risk management strategy to liquidate a losing position at a given point. See Stop order.
Stop limit order
Similar to a stop order, except that the trade must be executed at the exact price or better. If the order cannot be fulfilled at the exact price, it is held until the exact price or better is reached again.
Stop order
An order to buy or sell that becomes a market order when the market hits a designated price. A buy stop is placed above market price, and a sell stop is
placed below market price. Also known as stop-loss order.
Strike price
See Exercise price.
Suitability requirement
An NASD and NFA rule that requires as security futures principal to ascertain whether customers‘ financial means and investment objectives are appropriate to security futures trading.
Suitable
As assessment of an investor who trades in accordance with his or her financial means and investment objectives.
Support
A price level at which bearish prices have stopped falling. It is the opposite of resistance. Once this level is reached, prices consolidate for a period of time.
Synthetic future
A combination of a put and a call with the same strike price. If both are bullish, it is a synthetic long futures; if both are bearish, it is a synthetic short future. Such combinations mimic the purchase or sale of a single stock futures contracts, and thus the risk/return characteristics of trading a single stock futures contract.
Technical analysis
The examination of technical indicators, such as price range patterns, rates of change, volume changes, and open interest, in order to forecast future prices.
Tender
The notice that a seller of futures contracts gives to the clearinghouse to inform it that he or she intends to deliver the underlying asset to fulfill the contract. The clearinghouse then sends the notice to the oldest recorded buyer in that delivery month. See also Retender.
Tick size
The minimum change in price, up or down, for a security or futures or options contract. See also Point.
Time value
Any amount by which an option premium is above the option‘s intrinsic value, usually relative to the time left to expiration.
Trader
(1) One who trades for his or her own account. (2) an employee of a broker/dealer (B/D), futures commission merchant (FCM), or other type of institution who trades for her or his employee‘s account.
Trading range
An established set of high and low price limits within which a market will spend a distinct period of time.
Transaction costs
The expenses associated with buying or selling a financial instrument, such as brokerage commissions, regulatory fees, taxes, and the spread between the bid and offer prices.
Transferable Notice
See Retender.
Trend
The general direction of price movement in a market. See Downtrend, Uptrend.
Trend line
A line that connects a series of either highs or lows in rice movement. An uptrend line represents support, whereas a downtrend line represents resistance. Horizontal trend lines mark periods of consolidation.
Unauthorized trading
Buying or selling financial instruments for a customer‘s account without the customer‘s permission.
Underlying
(1) The cash commodity, index, or security on which futures contracts are based. (2) the futures contract, index, or security on which options are based.
Unit of trading
The quantity of the underlying asset that a futures contract represents. The
unit of trading of single stock futures contract is generally 100 shares of the stock for 1 contract. Each security futures exchange sets the size of its own contracts. Also, the minimum quantity required when trading.
Uptick
A situation in which a financial instrument sells for more than its previous transaction price. See Downtick.
Uptrend
The tendency for a market‘s price movements to create a series of higher high and higher lows.
Variable limit
A price system that permits greater-than-normal price movements under certain conditions, such as extreme volatility.
Volatility
A calculation of a futures contract‘s tendency for price fluctuation based on its daily price history over a period of time.
Volume
On a futures exchange, the number of contracts, usually round turn, traded during a specified period of time.
Wirehouse
See futures commission merchant (FCM)
Writer
The seller of an option. The seller is obligated to buy (in the case of a put) or sell (in the case of a call) the underlying asset. The buyer has the right, but is not obliged, to buy (in the case of a call) or sell (in the case of a put) the underlying asset.
Note: This glossary is included only to assist the reader and should not be construed as a set of legal definitions.
All Ordinaries Index
Index used to measure the share price movements in Australia‘s top public companies listed on the Australian Stock Exchange; also referred to as the ‗All Ords‘
American style
This means the holder of a warrant has the right to buy or sell shares in lots of 1000 at any time up to an expiry date
Annual General Meeting (AGM)
Yearly meeting of shareholders to discuss the performance of the company as the set out in the annual report, to vote on certain issues and to elect company directors
Annual report
Report prepared by the directors of a company that sets out the company‘s financial accounts and a summary of its performance.
Assessable income
Income you derive that is liable to tax; assessable income consists or ordinary income and statutory income
Australian Securities and Investment Commission (ASIC)
The Australian Government‘s regulator of the financial services industry
Bear Market (bearish)
Term to indicate the ‗down‘ direction of prices for shares in a falling market
Bid
The price you are prepared to pay for shares in a company
Blue chip
Any public company that is well established and trading profitably
Bonus shares
Free shares issued by a company; the amount of shares you receive will normally be in proportion to your current holding; for example, if a company declares a 1 for 5 bonus issue, you will receive one free share for every five you own; as more shares are now in circulation their market price will tend to fall.
Bookmark
An electronic marker used to remember favourite sites on the internet for quick access during future internet use
Brokerage fee
The charge you pay for having a stockbroker buy and sell shares on your behalf; this is shown on the Buy and Sell Contract note; it is a negotiable fee and is usually based on a percentage of the market price of the shares at the time you buy or sell
Bull market (bullish)
Term to indicate the ‗up‘ direction of prices for shares in rising market
Bulletin boards (BBS)
Electronic announcement boards found on the internet where users of common interests can post text messages relating to information and resources of relevance to others for pure pleasure, curiosity or interest
Buy contract note
An invoice you receive from stockbroker when you buy shares; it will summarise the details of the transaction, and can be used to calculate a capital gain or capital loss for taxation purposes
Call option
Gives the holder the right, but not the obligation, to buy shares in lots of 1000 at an agreed price on or before an expiry date; a call option is worth buying in a rising market
Call warrant
Gives the holder the right, but not obligation, to buy shares in lots of 1000 from the issuer (a financial institution) at an agreed price on or before an expiry date; a call warrant is worth buying in a rising market
Capital gain
A gain you make when you sell assets like shares for more than what you originally paid; under Australian Income Tax Law, a capital gain is subject to tax
Capital gain tax
A tax on a capital gain you make on disposal of assets like shares that you acquire on or after 20 September 1985; assets acquired before this date are excluded from these provisions
Capital growth
Increase in the price of investments like shares
Capital loss
A loss you make when you sell assets like shares below the price you originally paid; under Australian Income Tax law, a capital loss can only be offset against a capital gain
Chat rooms
Specific sites found on the Internet where users may electronically talk to each other via text communications from anywhere in the world in live group sessions or one-to-one sessions; visual and audio communication is also available on some sites
CHESS
This means ‗Clearing House Electronic Sub-Register System; under the system, a stockbroker sponsors you but the company sends a Holding Statement for the shares you hold
Company (Companies)
A separate legal entity that is capable of carrying on a business in its own right; a company raises capital to fund is business operations through the issue of shares
Consumer price index
The index used in Australia to measure the rate of inflation
Cost base
Under the capital fain tax provisions, the price you pay for assets like shares; it could also include sale costs and other associated costs you may incur
Course of trade
The indicator used by online stockbrokers to track a company‘s share-trading history during the course of the trading day; it is used to tell share traders at what price a stock has been selling and at what price it has been purchased, as well as the volume of orders placed and when trading occurred
Cross-border trading
The trading of shares in government-approved markets overseas without having to be a citizen of the foreign country
Cum dividend
Buying shares that carry the right to receive a dividend; this means the buyer of the shares will become entitled to receive a dividend rather than the seller of the shares
Cyclical company
Any public company whose income and capital growth is derived from continual economic activity and general growth
DAX
The performance index of the top public companies listed on the Frankfurt Stock Exchange in Germany; DAX stands for Deutsche Aktienindex
Day trader
Any person who buys and then sells shares on the same trading day for profit
Defensive company
Any public company whose business operations are not greatly affected by a change in economic conditions
Digital cash (or e-money)
Electronic cash used to buy and sell goods and services offered on the Internet from an online bank account (the whole online transaction takes place electronically on the Internet)
Direct-debt facility
A mechanism directing a bank or any other financial institution to electronically transfer funds from a user‘s account
Directors
Anyone appointed by a company‘s shareholders to manage and run the day-to-day operations of a company
Discount capital gain
A capital gin on disposal of assets (like shares or units in a Managed Fund) after 21 September 1999 that you had owned for at least 12 months; only half of the capital gain will be liable to tax at you marginal rate plus a Medicare levy
Dividend
A distribution of profit you receive from a company because you are a part owner; the amount you receive depends on the number of shares you own
Dividend imputation credit
A tax credit that you receive from a dividend that is franked; the size of the credit is dependent on the company tax rate
Dividend Reinvestment Plan
Any offer where you receive shares from a public company instead of a cash dividend; the shares may be offered to you at a discount and no brokerage fee or stamp duty is payable
Dividend yield
The rate of return from your share investment calculated as follows:
Dividend payment/Current market price*100
Do-it-yourself superannuation fund
Any superannuation fund that you manage yourself
Dot-com(s)
Term connected with investing in new technology and Internet companies
Dow Jones
The share price performance index of the thirty largest public companies listed on the New York Stock Exchange in the USA; the Dow Jones was founded in 1884 and named after economists, Dow and Jones---- it is formally known as the ‗Dow Jones Industrial Average‘
Dynamic data
Internet-related computer program that allows for simultaneous handling of different types of data such as text, graphics, video and/or audio, often providing the latest information to online users
Earning per share
The amount of net profit a company earns divided by the number of shares issued equates to the earning per share
Electronic mail or ‗e-mail‘
Mail in electronic form written and read from any Internet-enabled
communication device such as text, graphics, sounds and/or video
Electronic share trading
Any share trading that takes place across the Internet with any Internet-enabled communication device via an online stockbroking service
European style
This means the holder of a warrant has the right to buy or sell shares in lots of 1000 on an expiry date
Ex-dividend
Buying shares that do not carry the right to receive a dividend that is due for payment; the dividend will be paid to the seller of the shares
Exercise price
The share price holders of call options or call warrants pay if they exercise their right to buy the underlying shares; also, the share price holders of put options or put warrants will receive it they exercise their right to sell the underlying shares
Facsimile (fax)
A copy of a text document that has been scanned through a facsimile machine and transmitted over a telephone line to another facsimile machine for conversation back to a printed copy on paper for the recipient to view
Final dividend
A dividend paid at the end of the financial year
Financial year
A 12-month accounting period for taxation purpose; in Australia this is the period that commences on 1 July and ends on 30 June of the following year
Float(s)
Newly listed companies that wish to raise initial capital by offering their shares to the public
FTSE
The performance index of the top public companies listed on the Financial Times Stock Exchange in the UK
Franked dividend
A dividend that carries credit and can be applied against any tax payable as a dividend imputation credit; if no credit is received the dividend is said to be unfranked (it is also possible to receive a partially franked dividend)
Full service broker
Any stockbroker that provides information, advice and share trading facilities in the form of person-to-person trading, telephone trading and online trading
Goods and Services Tax (GST)
A 10 per cent tax on goods and services you purchase in Australia
Growth company
Any public company operating in a sector of the economy which is constantly growing
Grossing up (grossed-up)
A term used when both the dividend you receive and the imputation credit are added together as part of your taxable income; you will be taxed on the total amount and the imputation credit is applied against the tax payable
GSM mobile fax
A facsimile service available by concerning a digital mobile phone to computer installed with a data card or via an infrared connection
Hang Seng
The performance index of the top public companies listed on the Hong Kong Stock Exchange (it is named after the Hang Seng bank)
Holder Identification Number (HIN)
An identification number you receive under CHESS that you use when you buy or sell shares through a particular broker
Holding Statement (Statement of Holding)
A statement issued by a company confirming the number of shares you own
Information superhighway
A common term used to describe the Internet
Interface device
Any device used by Internet users to connect with the Internet
Internet
A worldwide network of computers allowing for the electronic exchange of information as text, graphics, video and/or sound
Internet booth
Any public area housing a fixed computer connected to the internet for anyone to access
Internet browser(s)
A program used by Internet users to scan electronically through the various websites located on the Internet
Internet cafe
Any local café or shop that offers access to the internet from computers set up in booths for patrons to send and receive e-mails and other social electronic communication uses while eating at the premises
Internet-enabled mobile phone
Any mobile phone with access to Internet-based services
Internet-based personal communications device
Any hand-held electronic device with access to Internet-based services
Internet search engine
A computer program used to locate relevant sites on the Internet based on subject, titles and other search criteria by using key words
Interim dividend
A dividend that is normally paid mid-year
Internet Service Provider (ISP)
Any business that offers Internet access and connection as well as other Internet-related services
Laptop computer
A portable computer that is small enough to sit on one‘s lap-----the keyboard is not necessarily fixed as one unit
Listed company
A public company listed on a stock exchange; shares and securities of listed companies can be traded on a stock exchange
Managed Funds
Pooled investment funds that offer a wide range of investment options; under this arrangement professional trustees and fund managers will be responsible for managing the investments for you (you will incur a charge for this service)
Marginal rate of tax
A progressive rate of tax payable on the income you earn----- for the 2002 financial year the marginal rates of tax in Australia are
* nil: up to $6000
* 17% : if your taxable income is between $6000 and $20 000
* 30% : if your taxable income is between $20 001 and $50 000
* 42% : if your taxable income is between $50 001 and $60 000
* 47% : if your taxable income more than $60 000
Market depth
An indicator used by online stockbrokers monitoring the level of demand by the market on any given day for a particular stock
Market price
The current share price that you can trade shares for on a stock exchange
Medicare levy
A medical levy that you must pay if your taxable income is above a statutory amount; this levy is based on a percentage of your taxable income
Message boards
Electronic announcement boards found on the Internet where users with common interests can post text messages for all to view
Mobile information age
A period characterized by the use of Internet-enabled hand-held electronic devices for worldwide communication for all to view
Modem
A device that connects to a telephone line to transfer data electronically between computers separately located
MSN Messenger Service
An Internet-based e-mail service provided by Microsoft where information specific to a recipient‘s interests are delivered to their e-mail address (MSN stands for Microsoft Network)
NASDAQ
This stands for the National Association of Securities Dealers Automated
Quotation system; its performance index (‗the NASDAQ‘) monitors the over-the-counter trading in the USA
Negative gearing
A term associated with borrowing money to purchase an income-producing asset; negative gearing arises when your expenses exceed your income and most of those expenses consist of interest
Net tangible asset
The net value of a company expressed on a per share basis; the following formula is used to calculate the net asset backing of a company:
Ordinary Shareholders Funds less Intangible Assets/Number of Ordinary Shares
New economy
A market made up of companies offering goods and services related to the Internet
Nikkei index
The performance index of the top public companies listed on the Tokyo Stock Exchange in Japan
Non-discount capital gain
A capital gain on disposal of assets (like shares or units in a Managed Fund) after 21 September 1999, that you had owned for less than 12 months (the entire capital gain will be liable for tax at your marginal rate plus a Medicare levy)
Notebook computer
A portable computer about the size of most briefcases and/or computer bags-----the keyboard is fixed
Offer
The price at which you are prepared to sell your shares in a public company listed on a Stock Exchange
Online electronic banking
Any banking service offered via the Internet
Online service
Any service that can be accessed electronically by an Internet-enabled communications device
Online trading
When shares are purchased and sold via an Internet-based stockbroking service
Ordinary share
A class of share that gives a shareholder voting rights, the right to receive dividends and the right to distribution of capital; shareholders who own ordinary shares are paid last if a company is wound up or goes into liquidation
Pager
A pocket-sized device that only receives short text-based messages and other information
Paging services
Any messaging service offered on a pager
Personal Digital Assistant (PDA)
Any screen-based, multi-featured hand-held personal communications device where an electronic pen is used to enable a personal organizer, fax, mobile phone, e-mail and other Internet-based facilities
Preference share
Shares that give shareholders the right or preference to a predetermined amount of dividends and return of capital prior to any ordinary shareholders receiving any rights
Premium
The price you pay (or receive) for an option or warrant
Price Earning ratio (PE ratio)
Measures the willingness of investors to purchase shares in a company; it is calculated by dividing earnings per share into the current share price
Prospectus
A legal document issued by companies wanting to rise finance; it sets out the terms and conditions of the loan and other matters required by law
Put option
Gives the holder the right, but not the obligation, to sell shares at an agreed price on or before an expiry date; a put option is worth buying in a falling
market
Put warrant
Gives the holder the right, but not the obligation, to sell shares in lots of 1000 to the issuer (a financial institution) at an agreed price on or before an expiry date
Rate of return
The return on your investment expressed as a percentage
Real-time share price tracking
Live monitoring of share prices as they move up and down throughout the trading day as well as volumes traded and numbers of trades
Real-time transactions
Electronic transactions that take place live without any delays across the Internet
SEATS
The stock exchange‘s electronic share trading system where the buying and selling of stocks is conducted using computers (it stands for Stock Exchange Automated Trading System)
Security Holder Registration Number (SNR)
An identification number issued by a public company at the time you buy shares in that company
Sell Contract note
An invoice you receive from a stockbroker when you sell shares in a public company; it will summarize the details of the transaction and can be used to calculate a capital gain or capital loss for taxation purposes
Share Purchase Plan
The opportunity to buy additional shares direct from the company free of brokerage; the shares may be offered to you at a price below their current market price
Shares
Associated with the ownership of a company; holding shares entitles you to receive dividends
Shareholder
Any person who owns one or more shares in a company
Shareholder Dividend Statement
A statement you receive from a company at the time it pays you a dividend; it will summarize the details of the payment and should be retained for taxation purposes
SMS
Term used to describe any short text message sent and received on any digital mobile phone
Spam
Term used to describe any short text message sent and received on any digital mobile phone
Spam
Term used to describe unsolicited junk electronic mail sent across the Internet to users
Standard & Poor‘s 5000 stock index
The performance index of the top 500 US-based public companies (the index is named after the US credit-rating agency)
Stockbroker(s)
Professional(s) authorized to buy and sell shares on the stock exchange; stockbrokers charge a brokerage fee for their services
Superannuation fund
A fund set up to finance retirement strategies; money cannot normally be accessed until you reach 55 years of age and retire from the workforce
Taxable income
Any amount of income that is subject to tax
Unfranked dividend
A dividend that does not carry any imputation credits
Underlying shares
The shares you will be buying or selling
WAP mobile phones
Digital mobile phones that can access the Mobile Internet and exchange electronic information by using the telecommunications‘ standard for transferring electronic data called ‗Wireless Access Protocol‘ or WAP
Warrant
An option issued by a financial institution that gives the holder the right but
not the obligation to buy from the issuer or sell to the issuer shares in lots of 1000 at an agreed price on or before an expiry date
Watch list
A list of shares that can be set up by you on your computer screen or on any other Internet-enabled communications device to watch their share price movements and other trading details live throughout the trading day
Website
Any site found on the Internet located with a web address; it is made up of web pages containing electronic information and/or resources for users (the information provided may be as text, graphics, video and/or sound)
Yield(s)
The return you receive from your share investment; this return will be expressed as a percentage
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