Understanding Securities Markets and Performance for NISM certification
Every later chapter of Series XII builds on this one: what a security is, who takes part in the market, who regulates it, and why a working securities market matters to the whole economy.
Operations & MarketsSeries XII62 MCQs4 lessons22 flashcards4 memory tricks
Practise Understanding Securities Markets and Performance free
What you'll learn
- What is a security?
Define a security, list the main types, and tell securities apart from other financial contracts. - Structure and participants
Explain the primary and secondary markets and the roles of investors, issuers and intermediaries. - Who regulates the market?
Match each regulator with its area. - Why securities markets matter, and how technology changed them
Explain the economic role of markets and the cyber and fintech framework.
Concepts explained
What makes something a security
A security is a standard, transferable financial instrument covered by the Securities Contracts (Regulation) Act, 1956.
What it means
- It records the terms between an issuer and an investor.
- It can be transferred to another investor, usually through a market.
- The SCRA list includes shares, bonds, derivatives, mutual fund units and government securities.
- Deposits, insurance policies, chit funds and provident fund accounts are not securities.
- Both are 1-year, same rate, same bank
- The deposit can only be broken, often with a penalty
- The CD can be sold to another investor at the market price
Answer: Only the CD is a security
Related terms
- SCRA: Securities Contracts (Regulation) Act, 1956
- Dematerialisation: holding securities in electronic form
Exam tip: If an exam option says 'insurance policy' or 'bank deposit' is a security, it is wrong.
Primary vs secondary market
The primary market creates securities and gives money to the issuer; the secondary market trades existing securities between investors.
What it means
- Primary: IPOs, further issues, rights issues, private placements.
- Secondary: trading on stock exchanges.
- The issuer gets no money from secondary trades.
- Secondary market liquidity supports the primary market.
- Company sells new shares in an IPO: money goes to the company
- Next week an investor sells those shares on the exchange: money goes to the selling investor
Answer: Primary then secondary
Related terms
- Liquidity: ability to sell quickly at a fair price
- Listing: admission of a security to trading on an exchange
Regulators of the financial system
Several regulators share responsibility: SEBI for securities, RBI for money, forex, banks and government securities, MCA for companies, and sector regulators for insurance, pensions, insolvency and IFSCs.
What it means
- SEBI: statutory body under the SEBI Act, 1992.
- RBI: regulates the G-sec market and is the government's issue manager.
- IRDAI (1999), PFRDA (2013 Act), IBBI (IBC 2016), IFSCA (2020, GIFT City).
- Broker misuses funds: SEBI
- Bank refuses a loan: RBI
- Pension scheme issue: PFRDA
Answer: Each sector has its own regulator
Related terms
- ICDR Regulations: SEBI's rules for public, rights and other issues (2018)
- NCS Regulations: SEBI's rules for non-convertible securities (2021)
Exam tip: Government securities: RBI, not SEBI.
SEBI's cyber framework (CSCRF)
The Cybersecurity and Cyber Resilience Framework sets cyber rules for all SEBI-regulated entities.
What it means
- Goals: anticipate, withstand, contain, recover, evolve.
- Functions: governance, identify, protect, detect, respond, recover.
- Board-approved policy and critical systems list.
- Incident reporting, crisis plan, CERT-In empanelled auditors.
- Detect: monitoring flags unusual logins
- Respond: report on SEBI's portal and follow the incident plan
- Recover: switch to alternate systems and restore service
- Evolve: fix the weakness found in root cause analysis
Answer: The framework in action
Related terms
- Cyber security: preventing attacks
- Cyber resilience: preparing for, coping with and recovering from attacks
Memory tricks
Five roles of securities markets.
The five cyber resilience goals in order.
Common non-securities to remember.
Issuer gets money only in the primary market.
Try 3 NISM-style questions
Q1. Converting existing share certificates into electronic form is called
- Rematerialisation
- Dematerialisation
- Securitisation
- Listing
Show answer
Answer: (2) Dematerialisation
Dematerialisation converts paper to electronic form.
Q2. Who manages a public issue from structuring and pricing to listing?
- Depository participant
- Custodian
- Credit rating agency
- Merchant banker (lead manager)
Show answer
Answer: (4) Merchant banker (lead manager)
The merchant banker manages the issue process.
Q3. Intermediaries who underwrite issues in the government securities market are called
- Authorised persons
- Primary dealers
- Custodians
- Market makers in equity
Show answer
Answer: (2) Primary dealers
Primary dealers underwrite and deal in government securities.
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