(i) The Stock Exchange promotes the general prosperity of the nation, by providing the market which tempts us all to save, confident in the knowledge that saving invested in a government or industrial stock can be reclaimed at very short notice, if needed, by selling on the Exchange.

Houses, factories, hospitals and schools are built with these savings to promote the prosperity of all. Every year on average Rs. 520,000 million is collected in this way. The companies whose shares are dealt with on the Stock Exchange control over 80 percent of all Britain’s industry and commerce and employ the bulk of the population.

(ii) Private citizens are vitally affected by the activities of the Stock Exchange. Not only do their employment, housing, insurance, social welfare, and entertainment almost entirely depend upon funds made available through the stock market, but also the cheapness and abundance of the good and services depends upon the large-scale enterprises which produce them without large-scale industry, goods would be less plentiful and more expensive; so our standard of living is drastically affected by what jobbers and brokers do on the floor or of “the House”.

(iii) Without knowing it, nearly every member of the public is an investor through the institutional investors such as pension funds, trade unions, insurance companies, and building societies.


(iv) Government activity of many sorts depends upon funds raised by the sale of securities. These funds would not be available if the Stock Exchange did not provide the market for the securities purchased.

The nationalized industries and the great welfare activities of Government departments would be seriously impaired if these funds were not provided. Over Rs. 6400 million pounds worth of Government and local government stock is marketed through the Stock Exchange in Great Britain alone.

(v) Valuations have to be place upon the assets of both private persons and firms at certain times. For instance at death the estate of the dead person has to be valued for tax purposes and in order to share up the inheritance as laid down in the will of the deceased person. With businesses it is often necessary to value the assets, or instance when the businesses changes hands.

On these occasions a problem of valuation affecting shares owned by the deceased person, or by the business concerned, may have to be solved by using the Stock- Exchange prices on the day of death, of the day of transfer of ownership.


A Glossary of Stock-Exchange Terms

Account-The period during which dealings take place, before a reckoning is made and securities are transferred for payment to their new owner. There are usually 23 fortnightly Account and two three weekly Accounts.

Backwardation-A charge made to a ‘bear’ for the use of shares to enable him to escape from his unsatisfactory position, by carrying his debts for shares he is unable to buy at present over to the next Account.

Bank Rate-The rate formerly charged by the Bank of England on loans to the discount market. It controlled all other rates of interest charged by banks throughout the country.


Bear-A speculator who, believing share prices will fall in the near future, sells shares with the idea of buying them back more cheaply.

Bearer Securities-Securities that can be transferred by mere delivery-without a transfer from being made out or the transfer being registered by the company that issued the shares.

Blue Chips-High-class industrial shares of great reliability.

Bond-A security issued by a government, nationalized corporation or a company, which carries a fixed rate of interest to the holder. Company bonds are called Debentures.


Bonus Issue-An extra share issued to existing shareholders to capitalize reserves which have been build up over the years. It does not mean the shareholder is better off, but he capital structure is regularized.

Broker-A member of the Stock Exchange who acts as an agent buying and selling for his clients.

Bull-Someone who believes prices will rise and rushes inn to buy shares with a view to selling them again at a higher price.

Call Option-An option to buy shares at a future date at an agreed price, whatever happens to the market.


Capital-The total of the financial resources of a company.

Capital Reserves-Reserves created by some extraordinary activity of a company, the most common types are profits prior to incorporation, premiums on Preference Shares, premium on Debentures, and reserves created by revaluation of property.

Capitalization-The process of changing reserves into capital by a bonus issue. When a company has built up reserves by a careful dividend policy, or has created capital reserves by revaluing assets at a higher figure, the reserves may or may not been retained in cash form but have been used to buy more fixed assets, bonus shares are used to capitalize the reserves and recognize formally that the reserves concerned are no longer available as possible dividend. It should be noted that a bonus issues does not increase the value of the shareholder’s holding.

Commission-The reward earned by brokers for acting as agents in the purchase of sale of shares. The scale is fixed by the Stock Exchange chase of shares over to the next Account because the rise they hoped for has not materialized.


Cum Div-Literally, ‘together with dividend.’ Shares which are sold along with the dividend due on them are said to be Cum Div. Part of the purchase price will be an element of compensation for the dividend due to the previous holder of the shares, which will now be enjoyed by the buyer.

Daily List-A list issued officially by the Stock Exchange showing quotations for about, 7,400 stocks and other securities valued at over Rs. 272,00,000 million.

Debenture-A fixed-interest bond issued by a company.

Deferred Shares-Also called founder’s Shares-These are shares issued to the original creator of a firm who sells out to a company. To agree to be paid partly in these shares is a sign that the vendor has confidence in the business he is selling, since he agrees to defer any dividend due to him until the other shareholders have had a reasonable dividend-say 8 percent.

The deferred shareholders may then be entitled to all or a substantial part of the remaining profit the exact terms being set out in the memorandum or articles of association.

Differential Opportunity-This is the result of poor communications between markets. Supposing the broker knew that the price of a share in Glasgow was less than in London, he could acquire them for his client more reasonably by buying there, and taking advantage of the opportunity offered him by the difference in price. Within the British Isles communications are so good that differential opportunities rarely occur. These activities are often called arbitrate activities.

Director-A member of the governing board of a company whose duties and powers are laid down in the Companies Acts of 1948-1981.

Dividend-That portion of a company’s profits or revenue reserves which the directors recommend and the Annual General Meeting approves as the sum to be distributed to the shareholders. It is usually expressed as a percentage of the nominal value of the shares.

Equality- The name given to the ordinary capital of a company, since every share gets an equal division of the profit. In common language, Equities have come to be thought of as ‘risk’ shares, since they also carry the losses if the company goes through bad times. Timid investors should not buy Equity shares.

Ex Div-When shares are sold Ex Div., the purchaser will not receive the dividend, which will e enjoyed by the previous owner. The situation arises three weeks before dividend date, when a public announcement is made that for dividend purposes transfers will cease. This gives the company secretary’s staff a chance to prepare dividend warrants.

The shares will adjust in value on the Stock Exchange, because part of the purchase price previously has been payment for the dividend the seller will now receive. After the announcement the price falls to a fair one taking into account that the purchaser will now effectively lose 21 days’ interest on his money.

Founder’s Shares-See Deferred Shares.

Gilt-Edged-The securities issued by the British Government, the State-owned companies, and the Commonwealth Governments. Absolute security is supposed to attach to gilt-edged securities, but in the last 25 years session of the investment has occurred owing to inflation. The Rs. 8000 repaid when the security is redeemed may not be as valuable as the Rs. 8000 contributed by the investor at the start of the transaction.

‘The House’-The stock Exchange itself.

Investment Trusts-A type of institutional investor. These firms specialize in balanced portfolios of shares designed to give reasonable yields with maximum safety. They are of particular benefits to investors who have not sufficient expert experience of the Stock market themselves.

Issuing House-A banking house specializing in launching new issues

Jobbers-Are ‘stall-holders’ in the market, buying shares from, and selling shares to, brokers acting on behalf of the public. They may have no con tact with the public, but deal only with brokers, or one another.

Market-Sometimes used of it, e.g. Property market, etc the market is often described as “bullish,’ “patchy,’ ‘easier,’ ‘brighter.’

Market price-The price at which shares actually changed hands for valuation purposes ‘average market price’ on a certain day is often used, sine a day’s bargaining may vary in market price throughout the day.

Minimum Lending Rate-The rate of interest charged. It replaced Bank of England for discount in first class bills of exchange. It replaced bank Rate in 1972. The system proposed then did not work well and in 1972.

The system proposed then did not work well and in August 1981 the Bank announced that it will only announce a minimum lending rate on rare occasions, when the market needs a clear signal. Instead it will manage rates discreetly by open market operations.

Nominal Price-The par value of a share given to it on its issuing day. This nominal value is retained throughout the life of the share but its actual value varies with the supply and demand, and the extent to which profits have been ploughed back since the share was issued.

Offer For Sale-an announcement by an issuing house of shares for sale. It contains the same information as a prospectus, but usually refers to a smaller company.

Option-See Call Option and Put Option.

Ordinary Shares-See Equity.

Par Value-The nominal value of a share. If a share is ‘at par’ it means that its market price is the same as its nominal value.

Planning-A system of issuing shares by asking institutional inventions to buy up the extra issue. It is cheaper than the usual way of issuing shares and is often helpful to the institution investors who are glad to purchase shares in reliable businesses.

Portfolio-A collection of securities by one investor or institution

Preference Share-Share with a prior right over ordinary shares to receive a dividend up to a certain fixed figure.

Premium-Money paid in excess of the par value of a newly issued share for the privilege of entering a well established firm. Also used at any time to describe a share which is available at a price higher than the par value?

Price/Earnings Ratio-The ratio of the price paid for a share to the profits of the firm after paying Corporation Tax and prior Charges. It calculates for the investor the true return on his investment, but it may not all be returned to him as dividend. This will depend on the directors’ policy. Reserves will be enjoyed as capital appreciation.

Put Option-An option to sell shares at a future date at an agreed price, whatever happens to the market.

Quotation-The price range, fixed by the Market each day, within which the Market is prepared to deal on that day. The Quotation is published in The Stock Exchange Daily Official List. In order to obtain a Quotation for its securities a Company must make application to The Stock Exchange Council, through a member firm, and comply with the requirements contained in the booklet Admission of Securities to Quotation issued by authority of the Committee of the Federation of Stock Exchange in Great Britain and Ireland.

Take-Over Bid- And offer addressed to the Shareholders of a company by an individual or firm to buy their shares at a named price above the present market price with a view to securing control of the company.

Take-over Code-A code of conduct drawn up by the City Working Party on Take-overs and Mergers, a body representative of the various elements in the City interested in the securities industry, at the suggestion of the Bank of England.

In consultation with the City Working Party, the Panel on Take-overs and mergers has been set up to supervise the code, and ensure that its general principals are understood and its rules, and even the spirit behind the rules, observed.

Stag-A speculator who applies for shares in a new issue with the intention of selling them at once on the

Stock Exchange should they be over-subscribed and therefore in strong demand

Share Certificate-The legal document issued to a shareholder certifying ownership of a part of the company concerned.

Revenue Reserves –Reserves created by ploughing back profits into the business. They may be either Special Reserves for particular purpose is the equalization of dividends as between good and bad years.

Rights Issue-These are new shares offered to an existing shareholder at a more favourable price than they will be offered to an existing shareholder at a more favourable price than they will be offered to the general public. For instance, if a Rs. 80 share is to be sold at a premium at Rs. 84, the existing shareholders would be given a right to buy them at Rs. 80. If the shareholder wishes to do so he may sell his right for 0.50 through his broker, after filling in the renunciation-of-rights section on the letter of allotment.

Tenders-A way of selling shares to the highest bidder. In some new issues the interested public is invited to put in tender for the shares they require. Suppose a Rs. 80 share is on offer.

The application from would include the phrase 1 wish to purchase…shares at a price of …’. A shareholder who is very keen to secure the shares might insert the price he is prepared to go to, say Rs. 84. If the directors accept this offer he will pay the price he suggested. It is a way of reducing stag activities; the profits do not go to the stag but to the company as a premium on shares.

Yield-The true return to an investor on an investment. Consider a Rs. 80 share bought at par and on which a dividend of 5 percent is declared. The yield is 5 percent.

Under Writers-Speculators who, for a premium, insure that issue of new shares by agreeing to buy what the public does not buy. Under the Companies Acts any Issuing House whose issue does no reach a certain minimum set is the amount required to ensure a successful start upon the proposed project. To avoid this disappointment directors underwrite the issue so that they are sure to be able to state the project.

Times covered-A. term used to denote how many times the dividend actually paid out to shareholders was covered by the net profits earned. The rest is retained as reserves.

Turn-The jobber’s turn’ is the profit margin he hopes to earn. It is the difference between his “bid’ price and his ‘offer’ price, although of course his prices are changing with supply and demand.