By Sunil K. Parameswaran
Securities may well be negotiable or non-negotiable. Equity shares are negotiable. Some debt securities such as Treasury Bills and Treasury Bonds are negotiable.
Others like fixed deposits are not. For instance, let us say that you have an FD for Rs 2,00,000 with ICICI Bank and owe me that a lot. You can not sign on the FD receipt and say transferred to a person else. You will have to close the FD, get the proceeds in your savings account, and then do an on the internet transfer or challenge a cheque. This is due to the fact an ordinary FD receipt is non-negotiable. Certain huge denomination FD receipts are negotiable in the dollars markets. These are referred to as Negotiable Certificates of Deposit or NCDs.
Securities registered or bearer
Securities may well be registered or bearer. In the case of the former, there is a record of the quantity of units held by a holder and the identity of the holder. Each time there is a transaction the register is updated. In the case of bearer securities, even so, there is no record of ownership. It is like possessing a currency note. If you drop a Rs 500 note on the floor, there is no way that you can prove that it belongs to you. Eurobonds, which are bonds issued in a nation, in a currency other than its national currency, are normally bearer.
Securities have an connected settlement cycle. This refers to the length of time taken for the purchaser to get the securities, and the seller to get the funds, just after the date of the transaction. Indian equity markets have a T+2 settlement cycle. Which indicates, if a party in Bengaluru sells shares to a party in Mumbai on a Monday, the former will get the money on Wednesday and the latter will get the securities on Wednesday as effectively, assuming there are no intervening industry holidays.
Settlement cycle
The settlement cycle may well differ from industry to industry and in the similar industry from item to item. For instance, T-bills may well have a T+1 settlement cycle, even though T-bonds may well have a T+3 settlement cycle. Certain markets are so tiny that there is T+ settlement— all the things is settled by the finish of the trading date itself. T+N settlement is referred to as Rolling Settlement irrespective of the worth of N.
The terms ‘buy side’ and ‘sell side’ are used to refer to players in the industry. Buy side is utilized mainly to refer to institutional participants such as mutual funds, pension funds, hedge funds, and insurance coverage firms. Sell side is utilized for the brokers and dealers who facilitate trades in the industry. The implication is that the former are looking for to invest in the services of the exchange, even though the latter are promoting the services of the exchange. Note, invest in side and sell side have nothing at all to do with the acquiring and promoting of securities. That is, a invest in side trader may well sell securities, even though a sell side trader may well invest in securities. A party who is acquiring a safety is stated to be taking a extended position, whereas if a party borrows and sells a safety, and consequently has a commitment to invest in in the future, he or she is stated to have a quick position.
The writer is CEO, Tarheel Consultancy Services