CAPITAL MARKET

The market where investment instruments like bonds, equities and mortgages are traded is known as the capital
market. The primal role of this market is to make investment from investors who have surplus funds to the ones
who are running a deficit.

1. Types of capital market There are two types of capital market:

2. Primary market, Secondary market

Primary Market It is that market in which shares, debentures and other securities are sold for the first time for
collecting long-term capital. This market is concerned with new issues. Therefore, the primary market is also
called NEW ISSUE MARKET.

Secondary Market The secondary market is that market in which the buying and selling of the previously issued
securities is done. The transactions of the secondary market are generally done through the medium of stock
exchange. The chief purpose of the secondary market is to create liquidity in securities.

Preference Shares 1. It offers a fixed rate of dividend. 2. Right to get capital on winding up, before anything is paid
to equity shareholders.

Equity or Ordinary Share 1. These shares have voting rights. 2. It doesnt offer a fixed rate of return. 3. They are not
entitled to get capital on winding up, before paying to preference shareholders.

Difference between Share & stock

"stock" is a general term used to describe the ownership certificates of any company, in general, and "shares" refers
to a the ownership certificates of a particular company. So, if investors say they own stocks, they are generally
referring to their overall ownership in one or more companies. Technically, if someone says that they own shares -
the question then becomes - shares in what company?

Types of stocks

1. There are many different types of stocks available and in order to meet your financial goals, its important
that you understand the differences between them.
 2. Blue Chip Stocks Blue chip stocks are well-established, nationally known, and generally financially
sound companies. Blue chip companies have consistently demonstrated good earnings and industry
leadership. Blue chips are typically less volatile than other stocks and have a record of paying dividends in
both good and bad times.

3. 4. Growth StocksGrowth-stock companies have earnings and market share expansion that exceeds the
industry average and the economy in general. Growth stock companies typically reinvest their profits to
expand and strengthen their businesses, retaining most of their earnings to finance expansion and paying
little, if any, dividends to shareholders. Investors are attracted to these stocks because they expect the stock
price to go up as the company grows.

4. 5. Penny Stocks The term penny stock generally refers to low-priced (below $5) stock, which is traded
over the counter (OTC). Penny stocks are generally considered a very high-risk investment.

5. 6. Value Stocks Value stocks are those that are considered undervalued by value investors. Value investors
typically define undervalued stocks by their book/market and price/earnings ratios. Often value stocks
represent companies with past financial difficulties, whose potential for growth has been underestimated, or
that are part of an industry that is currently out of favor with investors.

DEFINITION of 'Equity '

Equity is the value of an asset less the value of all liabilities on that asset.

example, if someone owns a car worth $15,000 but owes $5,000 on that car, the car represents $10,000 equity

Equity = Assets Liabilities

NAV : ( NET ASSET VALUE)

Net asset value(NAV) is the value of a fund's asset less the value of its liabilities per unit.

NAV = (Value of Assets-Value of Liabilities)/number of units outstanding

The Formula NAV = (Total market worth of all securities owned by the fund + liquid cash and corresponding
holdings - fund liabilities) total outstanding shares of the fund.
Let's assume at the close of trading yesterday that a particular mutual fund held $10,500,000 worth of securities,
$2,000,000 of cash, and $500,000 of liabilities. If the fund had 1,000,000 shares outstanding, then yesterday's NAV
would be:

NAV = ($10,500,000 + $2,000,000 - $500,000) / 1,000,000 = $12.00

NAV is often associated with mutual funds, and helps an investor determine if the fund is overvalued or
undervalued. When we talk of open-end funds, NAV is crucial. NAV gives the fund's value that an investor will be
entitled to at the time of withdrawal of investment. In case of a close-end fund, which is a mutual fund with fixed
number of units, price per unit is determined by market and is either below or above the NAV.

Mutual Fund:

A mutual fund is a professionally managed investment fund that pools money from many investors to
purchase securities

There are two types of these products on the market.

Open-end funds are what you know as a mutual fund. They don't have a limit as to how many shares they can issue.
When an investor purchases shares in a mutual fund, more shares are created, and when somebody sells his or her
shares the shares are taken out of circulation. If a large amount of shares are sold (called aredemption), the fund may
have to sell some of its investments in order to pay the investor.

You can't watch an open-end fund like you watch your stocks, because they don't trade on the open market. At the
end of each trading day, the funds reprice based on the amount of shares bought and sold. Their price is based on the
total value of the fund or the net asset value (NAV)

Closed-End Funds
Closed-end funds look similar but they're very different. A closed-end fund functions much more like an exchange
traded fund than a mutual fund. They are launched through an IPO in order to raise money and then trade in the open
market just like a stock or an ETF. They only issue a set amount of shares and, although their value is also based on
the NAV, the actual price of the fund is affected by supply and demand, allowing it to trade at prices above or below
its real value.

Advantages of Mutual Funds

 Portfolio diversification: It enables him to hold a diversified investment portfolio even with a small amount of
investment like Rs. 2000/-.

Professional management: The investment management skills, along with the needed research into available
investment options, ensure a much better return as compared to what an investor can manage on his own.

Reduction/Diversification of Risks: The potential losses are also shared with other investors.

Reduction of transaction costs: The investor has the benefit of economies of scale; the funds pay lesser costs
because of larger volumes and it is passed on to the investors

. Wide Choice to suit risk-return profile: Investors can chose the fund based on their risk tolerance and expected
returns

What are Derivatives? A derivative is a financial instrument whose value is derived from the value of another asset,
which is known as the underlying

Example :The value of a gold futures contract is derived from thevalue of the underlying asset i.e. Gold

Types of markets in derivatives :

Exchange-traded markets (stock exchange)

A derivatives exchange is a market where individuals trade standardized contracts that have been defined by the
exchange.

Over-the-counter markets (face to face)

Types of derivatives

Forward contracts

Forward contract is relatively a simple derivative. It is an agreement to buy or sell an asset at a certain
future time for a certain price.

A forward contract is traded in the over-the-counter marketusually between two financial institutions or
between a financial institution and one of its clients.

Forward contracts on foreign exchange are very popular, and can be used to hedge foreign currency
risk.

Futures contracts (Chicago Board of Trade (CBOT) Chicago Mercantile Exchange (CME)
 A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the
future for a certain price.

Unlike forward contracts, futures contracts are normally traded on an exchange.

To make trading possible, the exchange specifies certain standardized features of the contract.

Options are traded both on exchanges and in the over-the-counter market.

There are two types of option:

Call option gives the holder the right to buy the underlying asset by a certain date for a certain price.

Put option gives the holder the right to sell the underlying asset by a certain date for a certain price.

The price in the contract is known as the exercise price or strike price.

The date in the contract is known as the expiration date or maturity.

Options give the option holder the right, but not the obligation to buy or sell the specified amount
of the underlying asset (currency) at a pre-determined price (exercise or strike price)

American options can be exercised at any time up to the expiration date.

European options can be exercised only on the expiration date itself.

Most of the options that are traded on exchanges are American.

DEFINITION of 'Swap'

A swap is a derivative contract through which two parties exchange financial instruments. These instruments can be
almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to.

Three main types of traders can be identified:

hedgers, speculators, and arbitrageurs.

Hedgers are in the position where they face risk associated with the price of an asset. They use derivatives to
reduce or eliminate this risk.

Speculators wish to bet on future movements in the price of an asset. They use derivatives to get extra leverage.
Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets.

1. BOND EXCHANGE OFFER

2. 2. INTRODUCTION An exchange offer is an offer made by corporation to retire its securities from
the market by exchanging the outstanding security for another type of security. An exchange
offer is made when a corporation decides to change its capital structure. It may need to eliminate
costly, obsolete, or restrictive features offered with the outstanding security issue.

3. 3. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action, if it is mandatory or

Non-voluntary event or book on Expiration date if it is Voluntary event. Calculate the new
shares to be purchased by multiplying Client response to share ratio if it is voluntary event.
Calculate the new shares to be purchased by multiplying prior to Ex date holdings to share ratio if
it is Non-voluntary event. We book Sell trade on parent cusip & buy trade on the entitle child
cusip in both type of events.

4. 4. CUSTODY TREATMENT Custody will also book Sell on parent cusip & Buy Trade onto the
resultant Cusip according to corporate action share ratio. Custody would book a separate sell &
buy trades for shares which are On-Loan & for those which are Off Loan.

5. 5. SAMPLE OF BOND EXCHANGE OFFER Details of Corporate Action: Exp Date: 03/04/2008
Record Date: Payable Date: Ratio: 1 unrestricted security for existing one restricted security
Fund: RNNB Client Response: 480000

6. 6. IMPORTANT NOTES In US Bond exchange offers, holding of the parent security moved to the
contra cusip ( Temp CUSIP)after response received from client. But we do not post any trades for
such movements unless holding from contra cusip not moved to child cusip.

7. 7. BONUS ISSUE

8. 8. INTRODUCTION A Corporation issues extra shares of a Security to its Shareholders at NO

COST. Bonus Shares are those shares issued by a company to its existing Shareholders at
ZERO COST or FREE. It means that the Shareholders are benefitted by some additional shares
without paying for it.

9. 9. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying your Ex-date holding by ratio given. We book a BUY
Trade on system or there is an Auto SPDIV, in both the cases the Shares are bought at ZERO
COST.

10. 10. CUSTODY TREATMENT Custody will also book a Buy Trade onto the resultant Cusip as
provided on BCAR which can be Same Parent Cusip or New Cusip. Custody would book a
separate buy trade for shares which are On-Loan & for those which are Off Loan.
11. 11. SAMPLE OF BONUS ISSUE Details of Corporate Action: Ex Date: 12/03/2008 Record
Date:11/03/2008 Payable Date: 16/03/2008 Ratio: 3 New shares for Existing 10 shares Fund:
ABCD Holding (Prior to Ex Date): 14259

12. 12. CONVERSION

13. 13. INTRODUCTION A conversion is an offer made by corporation to convertible bondholders &
convertible preferred stockholders to convert their securities to common stock of the company.
Corporations issue convertible securities to offer investor flexibility. The conversion will usually
takes place when the common stock has greater value than the convertible bond or preferred
stock.

14. 14. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action, if it is mandatory or
Non-voluntary event or book on Expiration date if it is Voluntary event. Calculate the new
shares to be purchased by multiplying client response to share ratio updated, if it is voluntary
event. Calculate the new shares to be purchased by multiplying prior to Ex date holdings to
share ratio updated, if it is Non-voluntary event. We book Sell trade on parent cusip & buy trade
on the entitle child cusip in both type of events.

15. 15. CUSTODY TREATMENT Custody will also book Sell on parent cusip & Buy Trade onto the
resultant Cusip provided according to corporate action share ratio. Custody would book a
separate sell & buy trades for shares which are On-Loan & for those which are Off Loan.

16. 16. SAMPLE OF CONVERSION Details of Corporate Action: Exp Date: 31/12/2007 Record
Date: Payable Date: Ratio: 0.7244352 GBP shares for Each EURO share Fund: ABCD
Client Response: 49059 shares

17. 17. DIVIDEND REINVESTMENT PLAN

18. 18. INTRODUCTION A Dividend Reinvestment Plan offers shareholders choice of reinvesting a
cash dividend distribution to purchase additional shares of the company. Offering stockholders
the option of reinvesting dividends is an attractive investment strategy for most investors. For
corporation it gives Cash flow & tax benefits.

19. 19. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying Client response to net cash dividend receivable divided by
reinvestment price plus commission & stamp duty; if applicable. We book a BUY Trade on
amount which is equal to entitled shares into reinvestment price plus commission & stamp duty if
applicable.

20. 20. CUSTODY TREATMENT Custody will also book a Buy Trade onto the resultant Cusip
provided. Custody would book a separate buy trade for shares which are On-Loan & for those
which are Off Loan.
21. 21. SAMPLE OF DIVIDEND REINVESTMENT PLAN Details of Corporate Action: Ex Date:
06/02/2008 Record Date:08/02/2008 Payable Date: 05/03/2008 Ratio: Reinvestment price
GBP 2.00675 Net Cash dividend Rate GBP 0.0135 Fund: ABCD BCAF Response: 123181

22. 22. STOCK CASH OPTION Stock Cash option is also similar to Dividend reinvestment Plan &
both these actions have same treatment except Stock Cash option will be booked on expiration
date while dividend reinvestment plan will be booked on ExDate. Sometimes instead of
Reinvestment Price there is stock ratio updated in Stock Cash option corporate action. In such
cases, we calculate the entitlement by multiplying stock ratio by the response given.

23. 23. SAMPLE OF STOCK CASH OPTION Details of Corporate Action: Ex Date: 18/01/2008
Record Date:31/12/2007 Payable Date: 31/01/2008 Ratio: 0.064841126 new shares per each
responded share Fund: ABCD Response: 8287

24. 24. IMPORTANT NOTES In this stock cash option, cash option gets prorated. Shareholders will
not receive cash dividend @ USD 2.51 but will receive cash dividend @ USD 0.808113 &
0.043965048 share per each responded share because of proration. We will calculate the
entitlement by multiplying client response to share ratio updated & buy these shares @ amount
which is equal to client response multiplied by USD 1.701887 i.e. ( USD 2.51- USD 0.808113)
dividend to be capitalized.

25. 25. FULL / PARTIAL CALL

26. 26. INTRODUCTION A Corporation issues Bond with provision that it may have the right to
redeem or Call full or partial redemption of the bond issue before its maturity date. A
corporation issues callable bonds because it provides control over an outstanding security. If the
interest rates decline to the point that it becomes too costly to have an issue outstanding, the
issuer can invoke the call provision. This enables the issuer to refinance the debt by selling the
bond at a lower interest rate. In Full Call entire holding of the shareholders get redeemed while
in Partial Call only some percentage of the bond issue get redeemed.

27. 27. ACCOUNTING TREATMENT FOR FULL CALL Book on Ex Date of the Corporate Action.
Calculate the call amount by multiplying redemption rate updated to original face position or
current position. We book Sell trade on accounting, selling entire position against call amount.

28. 28. CUSTODY TREATMENT FOR FULL CALL Custody will also sell the entire bond position
against call amount. Custody will book the sell trade against original buy (Original Face) trade.
But if it is Sinking Bond you will find accounting trade has been booked against the current
position which is valid.

29. 29. SAMPLE OF FULL CALL Details of Corporate Action: Ex Date: 15/04/2008 Blocking
Date:14/04/2008 Payable Date: 15/04/2008 Redemption Rate: EUR 0.251385312 Original
Face: 100000 Current Position: 25138.61

30. 30. IMPORTANT NOTES In US Tenders, we wait for custody cash movement. Custody will
transfer holding from parent to contra cusip & there will be cash movement against contra cusip.
 But on accounting we will book sell trade only on parent cusip against cash received on the
custody.

31. 31. LIQUIDATION

32. 32. INTRODUCTION Liquidation means winding-up or dismantling of the business. Assets of a
company are sold, debts paid to creditors( in order of priority) & remaining proceeds distributed to
the shareholders. An unprofitable company will go through various stages in an attempt to
reverse its problems. But if they can not be resolved it will ultimately go into liquidation.

33. 33. ACCOUNTING TREATMENT We process Liquidation on custody movement only. We will
mirror trade booked on custody on to the accounting, taking same trade date & pay date as used
in trade booked on custody.

34. 34. CUSTODY TREATMENT Custody will also book Sell on parent cusip & Buy Trade onto the
resultant Cusip provided according to corporate action share ratio. Custody would book a
separate sell & buy trades for shares which are On-Loan & for those which are Off Loan.

35. 35. MERGER

36. 36. INTRODUCTION It is action taken by corporations to merge two or more corporations to form
an independent legal entity. A merger usually takes place as result of one corporation having
product or services that other corporation needs or used. A merged corporation may also be
able to increase financial leverage & service opportunities.

37. 37. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. If it is cash merger,
we will sell parent Cusip at the cash rate given. If it is securities merger, we will sell parent Cusip
at full cost & by the entitlement Cusip updated at the same cost.

38. 38. CUSTODY TREATMENT Custody will sell parent Cusip at the cash rate as provided, if it is
cash merger. If it is securities merger, custody will sell parent Cusip & buy the entitlement Cusip
as updated. Custody would book a separate trades for shares which are On-Loan & for those
which are Off Loan.

39. 39. SAMPLE OF MERGER Details of Corporate Action: Ex Date: 03/03/2008 Record
Date:28/02/2008 Payable Date: 17/03/2008 Ratio: GBP 1.9306 per each share. Holding (Prior
to Ex Date): 394536

40. 40. SCREENSHOT OF CUSTODY SIDE (BTDA SCREEN) On Custody side you wont be able to
find any trade on Ex - date, as the same would appear on custody side around payable date
(which is 17/03/2008) for Off Loan Shares. Incase of those which are On Loan it would be
received within a period of 90 Days from Payable Date.

41. 41. IMPORTANT NOTES Sometimes in voluntary cash mergers proration factor is applied. In
such cases, for un-prorated response client may get security. In such case we sell the parent
 Cusip with full cost using cash broker & buy the entitlement Cusip @ reduced cost i.e. full cost
minus cash receivables.

42. 42. Return of capital & Special Dividend

43. 43. Definition A return from an investment that is not considered income. The Return of Capital is
when some or all of the money an investor has in an investment is paid back to him or her, thus
decreasing the value of the investment. This is not a gain of any type because it is not in excess
of the original investment. A Special dividend is a payment made by a company to its
shareholders that is separate from the typical recurring dividend cycle, if any, for the company.
The difference may be the result of the date of issue, the amount, the type of payment, or a
combination of these factors.

44. 44. Reason for Return of Capital Surplus Cash Reserves Optimization of Capital Structure
Restructuring Financial ratios Sale of Non-Core Business Assets

45. 45. Methods of Return of Capital Special Dividend Share Buyback Capital Restructuring
Reason for Special Dividend Strong Company Earnings Confidence among Investor Labeling
the dividend as Special Dividend

46. 46. Benefits to Company Optimum utilization of Capital (ROC) Sign of Sustainability Cost
effectiveness Attracting new investors Benefits to Shareholders Special Payment other than
Normal Dividend Tax Benefits (ROC) Pay Back to Investor (ROC)

47. 47. Effects on Accounting & Custody In case of Return of Capital, on accounting we pass a
negative POAJ to reduce book cost of the security invested On custody, cash will be received on
system. In case of Special Divs, if needed to treat it as Capital we pass a negative POAJ or if
needed to treated it as Income, income line will be set up and would be received as per receipt on
the custody side

48. 48. Example Security holding: 1000 shares Dividend of amount GBP2.00 Negative POAJ of
GBP2000.00 to be passed in order to reduce the book cost of the security (if treated as capital)
Income line will be set up for GBP2000.00 on the ex date and would be received on pay date (if
treated as income)

49. 49. REVERSE STOCK SPLIT

50. 50. INTRODUCTION It is an action taken by a corporation to decrease the number of

outstanding shares at predetermined ratio. A shareholders proportion of ownership remains the
same even though the number of shares decrease & price per share increases. Corporation may
elect to exercise a reverse split to increase trading activity.

51. 51. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying your Ex-date holding by ratio given. We book sell & buy
trade. We sell the parent Cusip at the cost & buy the entitlement Cusip at the ratio at the same
cost.
52. 52. CUSTODY TREATMENT Custody will book sell & buy trade. Custody will sell parent Cusip &
book buy trade onto the entitlement Cusip as provided on BCAR. Custody would book a
separate sell & buy trade for shares which are On-Loan & for those which are Off Loan.

53. 53. Sample of Reverse Stock Split Issue Details of Corporate Action: Ex Date: 22/023/2008
Record Date:21/02/2008 Payable Date: 22/02/2008 Ratio: 67 new shares for 74 existing shares
Holding (Prior to Ex Date): 273198

54. 54. IMPORTANT NOTES Sometimes there is return of capital action with reverse stock split. In
such cases, we sell the parent Cusip at the full cost & buy the entitlement at reduced cost i.e.
parent cost minus cash entitlement.

55. 55. RIGHTS ISSUE

56. 56. INTRODUCTION A stock right is a privilege granted to the existing shareholders of a
corporation to subscribe new issue of common stock before it is offered to the public, & to
maintain their percentage of ownership in the corporation. A company may issue rights to raise
additional capital for a specific venture. A company issues rights at the discounted (Subscription)
price.

57. 57. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying your Ex-date holding by ratio given. We book a BUY
Trade. Shares are bought at ZERO COST if price of the rights is less than 15 % of price of the
parent. If price of the rights is more than 15 % of parents price then we will do the cost allocation
between parent & rights according to percentage updated.

58. 58. CUSTODY TREATMENT Custody will also book a Buy Trade onto the resultant Cusip as
provided. Custody would book a separate buy trade for shares which are On-Loan & for those
which are Off Loan.

59. 59. SAMPLE OF RIGHTS ISSUE Details of Corporate Action: Ex Date: 15/01/2008 Record
Date:10/01/2008 Payable Date: 15/01/2008 Ratio: 2 Rights for existing 9 Ordinary shares
Holding (Prior to Ex Date): 42000

60. 60. RIGHTS ISSUE - EXERCISE After rights issue, action follows is Exercise rights which is
voluntary action where client have following four options. Option1 -: Exercise rights & purchase
new shares at exercise price. Option2 -: Request Sub custodian/ broker to sell the rights in the
market. Option3 -: Request Bank to sell the rights in the market on their behalf. Option4 -:
Allowing rights to be lapsed.

61. 61. ACCOUNTING TREATMENT Book on expiration date. If client opted for exercise we will sell
right Cusip & buy the new Cusip. If client opted for sale of rights then we would wait for sell of
rights on custody & mirror the custody trade. If client opted for lapse, we would give same
treatment as rights sold.
62. 62. CUSTODY TREATMENT If client opts for exercise custody will also sell parent Cusip & buy
the new Cusip. If client opts for sale of rights, custody will sell rights before expiration date. If
client opts for lapse, custody will book sell trade for lapsing rights after expiration date.

63. 63. SAMPLE OF RIGHTS EXERCISE Details of Corporate Action: Exp Date: 06/02/2008 Debit
Date: 06/02/2008 Payable Date: Ratio: 1 new share for 1 Right Response: 9733

64. 64. NEW TO ORDINARY(PARI-PASSU ) This is non voluntary action where new shares will rank
Pari-Passu. This action will only take place when client receives new shares in exercise
corporate action which are not tradable at exchange. So by this action shareholders will receive
shares which are tradable on exchange.

65. 65. ACCOUNTING TREATMENT Book on EX date of the corporate action. We will sell new
shares at cost & buy the ordinary line at the same cost. CUSTODY TREATMENT Book on EX
date of the corporate action. Custody will also sell new shares & buy the ordinary line at.

66. 66. SAMPLE OF NEW TO ORDINARY CORP ACT. Details of Corporate Action: Exp Date:
07/02/2008 Payable Date: 07/02/2008 Ratio: 1 Ordinary Share for 1 New Share Holding (Prior
to Ex Date): 9333

67. 67. SPIN-OFF

68. 68. INTRODUCTION It is an action taken by a corporation to separates a portion of its operations
or subsidiary company to create an independent company A spin off usually takes place when a
corporation decides not to contribute additional capital to a subsidiary. It then separates that
subsidiary to be a freestanding legal entity.

69. 69. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying your Ex-date holding by ratio given. We book buy trade on
entitlement Cusip & book Sell & buy trade on parent Cusip to give effect of cost allocation. We sell
the parent Cusip at the 100 %cost & buy the same at reduced percentage of the cost given while
buy the entitlement Cusip at the ratio at the percentage of cost updated.

70. 70. CUSTODY TREATMENT Custody will only book buy trade on entitlement Cusip. Custody
would book separate buy trades for shares which are On-Loan & for those which are Off Loan.

71. 71. Sample of Spin-Off Issue Details of Corporate Action: Ex Date: 04/03/2008 Record Date:
03/03/2008 Payable Date: 03/03/2008 Ratio: 4 shares of new company for existing one share
Holding (Prior to Ex Date): 12800 Local Cost : 1263465.59 USD Base Cost : 1263465.59 USD

72. 72. IMPORTANT NOTES Cost allocation effect would be given on accounting only as Custody
never consider the cost. So there will be no corresponding sell & buy trade booked on to the
parent Cusip on custody side as it is booked on accounting to give effect of cost allocation.

73. 73. STOCK DIVIDEND

 74. 74. INTRODUCTION A Stock Dividend is a Distribution of Profits (in the form of Stock) i.e.
declared by Corporations Board of Directors to its Shareholders This is where you will receive
extra shares in Security instead of Cash Dividend

75. 75. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying your Ex-date holding by ratio given on the BCAR. The
Ratio is found on the second screen of the BCAR. We book a BUY Trade on MCH (using REDB)
or there is an Auto SPDIV, in both the cases the Shares are bought at ZERO COST. CUSTODY
TREATMENT Custody will also book a Buy Trade onto the resultant Cusip as provided on BCAR
which can be Same Parent Cusip or New Cusip. Custody would book a separate buy trade for
shares which are On-Loan & for those which are Off Loan.

76. 76. SAMPLE OF STOCK DIVIDEND Details of Corporate Action: Ex Date: 16/01/2008 Record
Date:18/01/2008 Payable Date: 08/02/2008 Ratio: 0.05 for 1 per Share Holding (Prior to Ex
Date): 1260 Shares IMPORTANT NOTES In US stock dividend, F10 screen or second screen of
BCAR never gets updated & you will find the ratio on F6 screen or first screen of BCAR. In
Taiwan stock dividend, With holding tax get debited from Clients account which we do not
process.

77. 77. STOCK SPLIT

78. 78. INTRODUCTION A stock split is an action taken by a corporation to increase the number of
outstanding shares and decrease the market price. When the shares are distributed to
stockholders, current price per share will decrease proportionate to the increase in shares. Also,
the shareholders proportion of ownership remains unchanged.

79. 79. ACCOUNTING TREATMENT Book on Ex Date of the Corporate Action. Calculate the new
shares to be purchased by multiplying your Ex-date holding by ratio given. We book a BUY
Trade or there is an Auto SPDIV, in both the cases the Shares are bought at ZERO COST. If the
entitle Cusip is different than parent Cusip, we will book Sell & Buy trade. We will sell parent
Cusip at the full cost & buy the new Cusip according to share ratio @ the same cost.

80. 80. CUSTODY TREATMENT Custody will also book a Buy Trade onto the resultant Cusip
according to ratio provided, Resultant Cusip is same Parent Cusip. If the entitlement is different
than parent Cusip, Custody will sell parent Cusip & buy the new Cusip according to share ratio.
Custody would book a separate buy & sell trades for shares which are On-Loan & for those which
are Off Loan.

81. 81. SAMPLE OF STOCK SPLIT ISSUE Details of Corporate Action: Ex Date: 03/03/2008
Record Date:29/02/2008 Payable Date: 03/03/2008 Ratio: 10:1 Fund: XB1Y Holding (Prior to
Ex Date): 141 We do not process cash receives for fraction shares resulted out of stock split.

Personal account:
Personal account relates to persons with whom a business keeps dealings. A person called be a natural
person or a legal person. If a person receives anything from the business, he is called receiver and his
account is to debited in the books of the business. If person gives anything to business, he is called as a
giver and his account is to be credited in the books of the business.

The Golden Rule for Personal Account is,Debit the Receiver and Credit the Giver

Example: Goods worth 1000 bucks sold to Mr. Smith from Mr. John. In this transaction, Mr. Smith is
the receiver of goods, he is called receiver and his account is to be debited in the books of business.
Mr. John is the giver of goods, he is called giver and his account is to be credited in the books of
business.

Real account:

Real account relates to property which may either come into the business or go from business. If any
property or goods comes into the business, account of that property or goods is to be debited in the
books of the business. If any property or goods goes out from the business account of that property or
goods is to be credited in the books of business.

The Golden Rule for Real Account is,Debit what comes in and Credit What Goes out

3. NOMINAL ACCOUNT

Nominal account is an account that relates to business expenses, loss, income and gains. If business
incurs expense to manage and run business, account of that expense is to be debited in the books of
business. When a business earns income by rendering services or hiring business assets, an account of
that income is to credited in the books of business.

On other hand, if in the case the transaction of sale or purchase of goods or assets, if any loss is
incurred by the business, account of that loss is to debited in the books or assets. if in the transaction
of sale or purchase of goods or assets any profit is earned by the business, then account of that profit
is to be credited in the books of business.

The Golden Rule for Nominal Account is,Debit all Expenses or Loss and Credit all Income Gains or
Profit