Securities Market Segments for NISM certification
Securities are born in the primary market and live out their lives in the secondary market. Advisers must explain how a company raises money, how an IPO is priced and applied for, how exchanges keep trading safe, and what corporate actions such as rights, bonus issues, splits and buybacks do to a client's holdings.
Advice & ResearchSeries X-A66 MCQs5 lessons14 flashcards3 memory tricks
Practise Securities Market Segments free
What you'll learn
- The primary market and types of issues
Explain what the primary market does and the routes to raise capital. - IPOs: fresh issue, offer for sale, pricing and applying
Explain how an IPO is structured, priced and applied for. - Issuers, regulation and public issues of debt
Identify issuers and the rules for public issues of shares and debt. - The secondary market and how exchanges manage risk
Explain what the secondary market does and the safeguards that make settlement safe. - Corporate actions
Show how rights, bonus, dividends, splits, buybacks and delisting affect shareholders.
Key formulas
| Market capitalisation | Shares outstanding × market price |
|---|---|
| Example | 50 crore shares × ₹400 = ₹20,000 crore |
| Turnover ratio | Turnover (₹) ÷ market capitalisation |
Concepts explained
Book building
A way of pricing an issue by collecting bids within a price band and fixing the cut-off where demand covers the shares offered.
What it means
- Cap of the band up to 20% above the floor.
- All bids at or above the cut-off are allotted at the cut-off.
- Retail investors may bid 'at cut-off' and may get a discount of up to 10%.
- Cumulative demand: ₹240 1,500; ₹235 3,500; ₹228 6,500; ₹220 9,000
Answer: Cut-off ₹220; proportionate allotment
Fresh issue vs offer for sale
A fresh issue creates new shares and brings money to the company; an offer for sale transfers existing shares and pays the sellers.
What it means
- Fresh issue raises share capital and dilutes holders.
- OFS leaves share capital unchanged.
- PSU disinvestment is usually an OFS by the government.
Exchange risk management
Margins, capital adequacy, circuit breakers, price bands, novation, the Core SGF and surveillance together make settlement safe.
What it means
- Novation: the clearing corporation becomes the counterparty to every trade.
- Market-wide circuit breakers at 10%, 15% and 20%.
- Price bands of 2–20% on individual stocks, none on F&O stocks.
Corporate actions
Rights, bonus, dividends, splits, buybacks and delisting change what a shareholder holds or receives; entitlement is fixed by the record date.
What it means
- Bonus and split raise share count without changing value.
- Rights let holders avoid dilution by paying for new shares.
- Buyback extinguishes shares and raises EPS.
- 300 shares at ₹1,200
Answer: 450 shares at about ₹800
Memory tricks
IPO: first issue; FPO: later issue; OFS: proceeds to selling holders.
Both raise share count; neither changes total value; bonus uses reserves.
Market-wide halts at 10%, 15% and 20% index moves.
Try 3 NISM-style questions
Q1. Shifting a stock to the trade-to-trade segment means
- It can be traded only by institutions, not retail
- It is delisted
- Every trade in it must be settled by delivery
- Its price band is removed
Show answer
Answer: (3) Every trade in it must be settled by delivery
This curbs speculative intraday trading.
Q2. A client buys shares worth ₹50,000 and the margin rate is 20%. The upfront margin is
- ₹10,000
- ₹5,000
- ₹20,000
- ₹50,000
Show answer
Answer: (1) ₹10,000
20% × ₹50,000.
Q3. A shareholder who doesn't want to subscribe to a rights issue can
- Demand a cash refund from the company for the rights
- Convert them into bonus shares
- Transfer them to SEBI
- Sell the rights entitlements on the exchange
Show answer
Answer: (4) Sell the rights entitlements on the exchange
REs have an ISIN and trade like shares.
Practise all 66 questions Free · explanations for every option · see where you go wrong