Banking Terms - Set 20 (ICSD, Short Position, Capital Gain Tax, Book Building)

Announcement Date

The date at which a corporate actions event is officially announced. The announcement can either be made by the issuer or by the lead agent in the market.

For e.g. Company A announces a dividend of Rs. 10 per share on Apr 20, which means Apr 20 is the announcement date.

ICSD

The letters are standing for "International Central Securities Depository". It is in fact a Central Securities Depository through which securities from other countries can be held and that settles trades in international securities such as Eurobonds although many also settle trades in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs.

Most well-known ICSD's are: DTC [it’s a national CSD of USA but it holds a good amount of non-US securities too], Clear stream, Euro clear.

Short position

Short positions happen when a client sells more shares than he actually owns (he could do this for example when he expects the share price of the stock he is short selling to go down). At the end of each day, however, he needs to make sure he covers these short positions. He could do this by borrowing the shares from another party in the market in return for a fee.

E.g. A person trades/sells 1000 shares of company A, but his portfolio says he doesn’t possess any single share of this particular company to his name in his account. In this case, it is termed as a short position, which means he has to buy the same amount of shares before the end of that particular trading session.

Capital Gains Tax

The tax that needs to be paid over profits that were made for the securities that a person holds - i.e. a percentage has to be paid over the difference between the price at which a security was sold and the price at which it was bought. Several Corporate Action events result in profits over which capital gains tax needs to be paid.

E.g. For the Financial Period considered for tax calculation, consider, a person has earned a profit of Rs.1,00,000 including the trading gains, dividends received etc. Then, the person has to pay Capital Gains tax for the above amount which also depends on his/her tax terms for that particular year.

Book Building

Book building is a type in which the investors are asked to indicate the price on a firm, i.e. the best price that they will offer and the maximum number of shares that they will buy at particular time. This information will establish the most appropriate offer price for the issue.

For example in a rights issue event. the price at which shareholders can subscribe to new shares is being established by calculating the weighted average of share prices and trading volumes over a certain period of time. This method of calculation is called book building.