Banking Terms - Set 12 (Allotment Letter, Transformation, Basket Trading, BIN, CDPD)

Cellular Digital Packet Data (CDPD)

A method of sending data through cellular networks. CDPD is used with wireless credit card terminals to transmit transactions and deposits in mobile environments.

Bank Identification Number (BIN)

A unique series of numbers assigned by Visa/MasterCard to a member institution, which identifies that institution in transaction processing. The BIN comprises the first six digits of a standard credit card number.

Basket Trading

A group of securities that can be traded, managed and tracked as one entity. One of the aims of creating a basket is to spread risk. Basket trading is common for institutional investors and investment funds who wish to hold a large number of securities in certain proportions.

Index Funds are good example, which holds all kinds of securities at certain proportions

Transformation

Transformation are the second type of claims [similar to compensation discussed on Tuesday]. They occur in corporate actions events where the ISIN/Nominal Value changes. All trades instructed before the ex-date have to be cancelled on the ex-date and they have to be replaced by new trades in which new ISIN or ratio getting applied.

For E.g. :  10:1 stock split takes place with ex-date July 30, 2013. "A" instructs to buy 100 shares from "B" with trade date July 29, 2013 and contractual settlement date of Aug 01, 2013 at Rs. 10000 (the price per share = Rs. 100). On the ex-date, the pending trade will have to be reversed and replaced with a new trade for 1000 shares at Rs. 10000 (the price per share post-split = Rs. 10).

Allotment Letter

A legal document sent to shareholders during a Rights Issue. It represents the unconditional right to buy new shares. Shares should be paid for in advance. Allotment letters can be traded as renounceable documents, where the seller signs over the rights to a buyer.