Secondary Markets for NISM certification
The secondary market is where most investors meet the stock market: opening an account with a broker, placing orders, getting a contract note, and receiving shares or money a day later. This chapter covers each step and the safeguards around it.
Operations & MarketsSeries XII70 MCQs4 lessons20 flashcards5 memory tricks
Practise Secondary Markets free
What you'll learn
- Structure of the secondary market
Name the participants and explain what each does. - Opening an account and placing orders
Follow the account opening process and compare order types. - Safeguards: circuit breakers, contract notes and costs
Explain price bands, market-wide circuit breakers, contract notes and trading costs. - Settlement, margins and investor protection
Describe T+1 settlement, margins, risk management and grievance routes.
Concepts explained
Clearing corporation and novation
The clearing corporation becomes the counterparty to every trade, so investors don't face the risk of the other side defaulting.
What it means
- Nets each member's obligations.
- Collects margins.
- Runs pay-in and pay-out on T+1.
- Uses the Core Settlement Guarantee Fund if a member defaults.
- Buyer's broker fails to pay on settlement day
- The clearing corporation still pays the seller
- It recovers the loss from the defaulter's margins and, if needed, the SGF
Answer: Settlement is completed
Related terms
- Novation: replacing the original counterparties with the clearing corporation
- Pay-in / pay-out: delivery to / receipt from the clearing corporation
Limit, market and stop-loss orders
Order types trade off certainty of price against certainty of execution.
What it means
- Limit: price certain, execution not.
- Market: execution certain, price not.
- Stop-loss: activates at a trigger to limit losses.
- Bought at ₹1,000
- Stop-loss sell trigger at ₹950
- Price falls to ₹950: order activates and sells
Answer: Loss limited to about ₹50 a share
Related terms
- Trigger price: price at which a stop-loss order becomes active
Circuit breakers
Circuit breakers pause trading when prices move too far too fast.
What it means
- Stock price bands: 2%, 5%, 10% or 20%.
- Market-wide: index moves of 10%, 15% or 20%.
- Halt length depends on the time of day.
- Trading restarts with a 15-minute pre-open call auction.
- Index falls 15% before 1 p.m.
- Trading halts for 1 hour 45 minutes
- Then a 15-minute pre-open auction
Answer: A long pause to calm the market
Related terms
- Pre-open call auction: orders collected, then matched at one opening price
Grievance redressal
Investors move up a ladder: intermediary, SCORES, ODR conciliation, arbitration, appeal and courts.
What it means
- SCORES: resolution within 21 days.
- ODR: online conciliation, then arbitration.
- Arbitration award: 30 days (extendable by 30).
- Appeal: within 7 days to an appellate panel.
- Complain to the broker
- No reply: file on SCORES
- Still unresolved: ODR conciliation then arbitration
Answer: Escalate step by step
Related terms
- Investor Protection Fund: compensates genuine claims against defaulting members
Memory tricks
Equity trading session timings.
Index circuit breakers at 10%, 15% and 20%.
Bulk and block deal definitions.
T+1 settlement cycle.
SCORES resolution timeline.
Try 3 NISM-style questions
Q1. The minimum order size for a block deal is
- ₹1 crore
- ₹25 crore
- ₹5 lakh
- ₹500 crore
Show answer
Answer: (2) ₹25 crore
Block deals need at least ₹25 crore.
Q2. Investor Protection Funds are maintained by
- Listed companies
- Stock exchanges and depositories
- Individual investors
- Mutual fund distributors
Show answer
Answer: (2) Stock exchanges and depositories
Exchanges and depositories maintain IPFs.
Q3. The Nifty falls 15% at 1:30 p.m. Trading halts for
- 45 minutes
- 1 hour 45 minutes
- 15 minutes
- The rest of the day
Show answer
Answer: (1) 45 minutes
A 15% move between 1 p.m. and 2 p.m. causes a 45-minute halt.
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