Glossary of Stock Market Terminology

Allotment -The allocation of new securities to an applicant for a new issue.

Annual General Meeting -Mandatory yearly meeting of a company for the purposes of receiving the directors' report and statement of accounts for the year, declaring a dividend, electing directors and auditors and determining the auditors' remuneration.

Annual Report & Accounts -A document to be forwarded to shareholders by the directors of a company on an annual basis which contains, amongst others, the annual audited accounts of the company.

Arbitrage -Buying on one exchange and selling on another at virtually the same moment to take advantage of a price variation in a company's shares listed on the two exchanges.

Articles of Association -The documents of a company that govern the management and administration of that company.

Asset Backing -A handy yardstick for shareholders. It is the net assets of a company (assets less liabilities) divided by the number of shares.

At Discretion -An instruction given by a client to his broker, for the broker to buy or sell a stock at his (the broker's) discretion.

At Limit -An order placed which sets a limit on either the lowest or highest price, for which a share is bought or sold.

At Market (also At Best) -An instruction to buy or sell at market price. Allows the broker/dealer complete freedom of action. Should be treated with caution and used only when a share must be sold.

Authorised -Order entry, modification, and cancellation are generally authorised for the instrument.

Authorised Capital -The nominal amount of capital that a limited company is permitted to raise under the capital clause in its Memorandum of Association.

Averaging -Buying more of the same shares, generally on a falling market, to lower the average cost per share. (Can also average up, thereby raising the average cost per share).

Balance Sheet -A company's year-end statement of assets and liabilities.

Bear Market -A stock market in which sellers dominate, resulting in generally falling prices.

Blue Chips -The shares of a company known to make profits in good and bad times. As there is a low risk of capital loss, the dividend and earnings yield are proportionately low.

Bond -A document recording a loan and specifying the date of maturity and the rate of interest to be paid.

Bonus Issue -Distribution of capital funds (usually from a revaluation of assets or a share premium reserve) to shareholders in the form of shares for which payment is not required.

Bourse -A French term for stock exchange, grain exchange or exchange dealing in commodities.

Broker (Stockbroker) -An agent, authorised to buy and sell shares on behalf of a client.

Brokerage -A fee charged for the broker's services. Also called commission.

Bull Market -A stock market in which buyers dominate and where prices are on a rising trend.

Buying-In ~Buying-in means the buying effected by the Exchange, according to the rules of the Exchange, of securities which a seller has failed to deliver on the day fixed for delivery.

Calls -An instalment called up by a company on contributing or partly paid shares. A legal liability for shareholders of other than a "No Liability" company.

Capital Gain/ Loss -Profit/loss made on the sale of a capital asset.

Closing Price -The price of a share or security at the end of a day's stock market trading.

Class of Shares -A document recording a loan and specifying the date of maturity and the rate of interest to be paid.

Commission -A fee charged for the broker's services. Also called brokerage.

Companies Act 1965 -The Act of Parliament that governs companies.

Company -A separate legal entity, incorporated under the Companies Act 1965, carrying on a business or trade. A company may be private or public, limited by shares or unlimited, or limited by guarantee.

Contract Note -Document sent by brokers to clients of a purchase or sale of shares. It confirms the transaction, giving details of price, brokerage, stamp duty and clearing fee.

Continuous Matching -Continuous Matching is an order matching process according to price, time, then priority, without human intervention. After receiving buy or sell orders, Bursa Trade queues the orders and arranges them according to a price-then-time priority. This means orders are first grouped according to price, with the best price taking precedence. Then, within each price group, orders are arranged according to time. Continuous matching procedures only operate during the regular trading sessions. Bursa Trade continuously matches the first buy and sell orders in the queue, and at the same time, confirms each executed transaction.

Cum -A prefix meaning "with". A share quoted "cum-dividend" means the buyer is entitled to a dividend currently attaching to it, similarly with cum-rights and cum-bonus.

Debenture -A fixed interest security which has a maturity date and a specified rate of interest. The assets of the borrowing company are charged against the debenture issue; details of the charge are included in a Debenture Deed drawn up to protect the debenture holder.

Debt/ Equity Ratio -The relationship between a company's borrowing and its shareholders' capital funds.

Direct Business -In relation to the KLSE, any share transactions effected outside the Exchange, including:

crossing, that is transaction between two stockbroking companies; or

"married" transaction between two clients within a stockbroking company.

Discount -The amount by which the price of a share is quoted below its paid-up value.

Dissolution -The winding up of a company by way of compulsory liquidation or voluntary liquidation.

Dividend Cover -The number of items a company's annual dividend could be paid out of current earnings.

Dividend Yield -The amount of a company's annual dividend expressed as a percentage of the current price of the share of that company.

Earnings Per Share -The amount of a company's annual profits or earning attributable to each ordinary share of that company.

Equity -Another name for the ordinary shares of a company.

Ex -Prefix meaning "without", the opposite to "cum". The purchaser is not entitled to dividends, bonus shares or rights previously attached to the share.

Face Value- The actual paid-up value of a share. Seldom the same as the market value.

Float -Term given to the commencement or listing of a new company on the stock market.

Forbidden -Order, entry, modification and cancellation are forbidden for the instrument Auto forbidden is activated when an instrument expires at the end of a particular contract month.

Gilt Edged -A term usually associated with government or semi-government securities, more generally used on British markets.

Growth Stocks -Shares of companies with good prospects for increasing profits and capital size. Likely to bring shareholders future capital gains through a share price rise, high dividends, share bonuses or rights issues.

Indices -In relation to a stock exchange, calculations made on an index number basis to indicate the movements in the general level of prices of securities listed on that stock exchange.

Initial Public Offering (IPO) -An initial public offering (IPO) occurs when a company first sells common shares to investors in the public. Generally, the company offers primary shares this way, although sometimes, secondary shares are also sold as IPOs. For a company to offer IPOs, they need to hire a corporate lawyer as well as an investment banker to underwrite the offer. The actual sale of the shares is generally offered by the stock exchange or by regulators. When the company starts to offer IPOs, they are usually required to reveal financial information about the company so that investors can make an informed decision.

Insider Trading/ Dealing -Insider trading or dealing is the purchase or sale of a company's securities effected by or on behalf of a person with knowledge of relevant but non-public material information regarding that company. The insider is in a position to make massive gains by selling or buying securities before information that might affect the price of the company's securities (price-sensitive information) is made public.

Insider trading is an offence under the Companies Act 1965 and the Securities Industry Act 1983.

Instrument -A tradeble asset or negotiable item such as a security, commodity, derivative or index, or any item that underlies a derivative. An instrument is a means by which something of value is transferred, held or accomplished.

Issued Share Capital -The total number of shares issued by a company.

Limit Order -To avoid buying or selling a stock at a price higher or lower than what is wanted, it’s best to place a limit order rather than a market order. A limit order is an order to buy or sell an instrument at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When a market order is placed, the price at which an order will be filled can’t be controlled. For example, if you want to buy a "hot" stock that was initially offered at RM9, but don't want to end up paying more than RM11.70 for the stock, you can place a limit order to buy the stock at any price up to RM11.70. By entering a limit order rather than a market order, you will not be caught buying the stock at RM11.70 and then suffering immediate losses if the stock drops later in the day or the weeks ahead. A limit order may never be executed because the market price may quickly surpass the investor’s limit before the order can be filled. Using a limit order also protects the investor from buying a stock at too high a price. Some firms may charge more for executing a limit order than a market order.

Liquidation- The winding up of a company, which may either be compulsory or voluntary.

Liquidity of The Market -The state of affairs in a stock market in which it is generally easy to convert securities into cash and vice versa, without causing a movement in prices.

Loan Stock -A security issued by a company in respect of a loan made by investors.    

Manipulations -The act of transacting in the securities of a company that will have or is likely to have the effect of raising or lowering or maintaining the price of the company's securities on a stock market, with the intention of inducing other persons to purchase or subscribe for the company's securities. Such acts are illegal under the Securities Industry Act 1983.

Market Capitalization -The total value of a listed company's shares based on current market price.

Market Order -A market order is an order to buy or sell a stock at the current market price. Unless otherwise specified, a broker will enter an order as a market order. The advantage of a market order is that it is almost always guaranteed that the order will be executed (as long as there are willing buyers and sellers). Depending on a firm’s commission structure, a market order may also be less expensive than a limit order.

Marketable Parcel- Shares traded on a stock exchange as set in multiples based on share price.

Market Bids -A scale on which trading bids, through a stock exchange, are based.

Memorandum of Association -The document of a company that lays down its name, registered office, objectives, share capital and the liability of its members in the event of winding up.

Merger -In general terms, the amalgamation of two business enterprises into a new entity.

Negotiated Commission -The amount of fee to be paid to a stockbroker as agreed upon between client and stockbroker and not subject to a scale stipulated by the stock exchange concerned.

Nominee Company -A company formed by a stockbroking company, bank or other institution for the purpose of holding shares on behalf of the beneficial owners of the shares.

Odd Lots -This is an amount of shares that is smaller than the usual unit of trading; specifically, a quantity of less than 100 shares of stock in a transaction or a trade that is not divisible by 100.

Offer for Sale -One way in which the shares of a company are offered to the public, normally through an issuing house.

Official List -In respect of the Kuala Lumpur Stock Exchange, the list of all securities which have been admitted for quotation in accordance with the Exchange's Listing Requirements.

Open -Order entry, modification, cancellation and order execution are allowed for the instrument assuming the group state permits.

Option -Right to take up or sell shares at an agreed price at or before a specified future date. Prefixed with terms of "call" or "put".

Order Book -Order Book is an 'electronic book' that shows the demand for the shares of the company at various prices on a real time basis.

Paid-Up Capital -The amount of a company's authorised capital which has been subscribed by shareholders.

Par Value -The nominal price of a share, loan stock or debenture.

Pari Passu -In relation to a statement that newly issued shares rank pari passu with all existing shares, such newly issued share rank equally in every respect with all the other shares of the same class previously issued.

Portfolio -A selection of securities held by an investor.

Premium -The amount by which a share is quoted above its paid-up value.

Price Discovery -The process by which price is determined by negotiation in a free market. Basically, any asset purchased by an investor can be considered a financial instrument. Stock and corporate bonds are equally considered investing instruments as they can all be bought and sold as things that hold and produce value. Instruments can be debt or equity, representing a share of liability (a future repayment of debt) or ownership.

Price Earnings Ratio -The relationship between the price of a share and the earnings of the company attributable to that share, the result being expressed as the current share price divided by the latest available figure of earnings per share.

Private Company -A company in which the number of its members is restricted to 50.

Privatisation -The Government's exercise of the transfer to private ownership companies or public enterprises owned by the Government.

Prospectus -The document to be issued by a company intending to make an issue of shares to the public.

Proxy -One who is given written authority to vote for and on behalf of a shareholder at a meeting of the company.

Quotation -The prices bid and offered by buyers and sellers for securities listed on a stock exchange.

Receiver -An official appointed to wind up the affairs of a company.

Registrar -The official or corporation responsible for maintaining a company's share register.

Registrar of Companies -The public official appointed to administer the Companies Act 1965 and the Securities Industry Act 1983.

Remisier-An agent of a stockbroking company who brings business to that company in return for a share of the brokerage or commission.

Renunciation -The action of a shareholder in not taking up new shares attached as a right to the share he currently holds by renouncing such a right.

Reserves -Order entry, modification, and cancellation are permitted for the securities. The current trading status for the securities is automatically changed to 'Reserved' when the following occurs:Market order cannot be fully executed, potential match price is outside static threshold during pre-opening, and Market-on-Opening has no counterpart.

Rights -Companies raise additional capital by offering to existing shareholders the rights to subscribe for new shares, at a price usually below the current market price. These rights, while current, attract a price of their own and can be traded on any stock exchange.

Score -The acronym for "System on Computerised Order Routing and Execution", the automated trading system of the Kuala Lumpur Stock Exchange.

Scrip -Share certificate.

Securities- The generic term for any instrument traded on a stock exchange.

Securities Industry Act 1983 -The Act of Parliament governing the business of dealing in securities, stock exchanges and related matters in Malaysia.

Securities Commission -Established by the Ministry of Finance to streamline the activities relating to equity and futures markets.

Securities Commission Act 1993 -The Act of Parliament under which the Securities Commission was established on 1 March 1993.

Securities Industry (Central Depositories) Act 1991 -The Act of Parliament which governs the activities relating to the Central Depository.

Share -In relation to a company, a security representing a portion of the holder's capital in that company.

There are basically two types of shares, namely ordinary shares and preference shares.

Ordinary shares give holders the rights of ownership of the company, such as the right to share in the profits of the company by way of dividend, the right to vote in general meeting and to elect and dismiss directors.

Preference Shares have a preferential position over ordinary shares, in regard to the payment of dividends and the division of the company's assets. Some preference shares may have a cumulative entitlement in that dividends not paid can be carried forward and must be paid prior to an ordinary dividend payment or distribution on liquidation. Some preference shares are "participating" with ordinary shares in all dividend above a set rate, in addition to their own preferential dividend rate.

Other preference shares are redeemable at a certain date.

Share Split -When a company reduces the paid or face value of its shares, and issues further shares in the same proportion i.e. 100,000 RM 2 ordinary shares would be split into 200,000 RM 1 ordinary shares.

Short Selling -The action of a person selling shares which he does not own at the time of selling.

Stag -One who applies for a new security with the intention of selling it at the first available opportunity.

Stockbroker -An agent who buys and sells shares on behalf of his clients and is paid brokerage or commission for his services.

Stock Exchange -An organisation providing the market-place or facility for the buying and selling of stocks and shares.

Trading At Last (TAL) -Orders at TAL will only be entered and matched at the Closing Price. Only Limit orders are allowed and the system will reject any Market Orders.

Theoretical Closing Price (TCP) -Price at which an instrument would trade if it stops trading at the moment the price is calculated. TOP is calculated on a real-time basis in Pre-Closing/Closing Phase.

Theoretical Opening Price (TOP)- Price at which an instrument would trade if it opens at the moment the price is calculated. TOP is calculated on a real-time basis in Pre-Opening Phase.

Trustee Security -A security which meets the requirements of legislation relating to the use of funds by trustees.

Underwriter-An organisation, normally a merchant bank or a broking firm, that guarantees a minimum level of subscription to a share or debt issue. If public subscriptions fail to reach the minimum level, the underwriter takes up the shortfall. Underwriters often have sub-underwriters to share the risk.

Unsecured Note -A fixed interest security with a maturity date and specified rate of interest.

Unlike a debenture, it is not secured by a charge over the issuing company's assets. Unsecured note holders rank ahead of shareholders in the event of the company's liquidation.

Vendors' Shares -Shares allotted instead of cash to persons or companies as a consideration for acquisition of property. Are restricted in respect to transfer.

Winding Up -The voluntary or compulsory liquidation of a company.