NISM Series VI · Unit 1 of 12 · about 5% of the paper
Introduction to securities market: NISM Series VI notes and practice questions
The market that the depository system serves: what securities are, who issues and trades them, and who regulates the market.
What to know in Unit 1
- Primary and secondary markets.
- Market participants.
- Role of SEBI.
- Rolling settlement.
Key terms, examples and exam traps
Securities
Securities include shares, debentures, government securities, units of mutual funds and similar instruments that can be issued and traded.
Example. A share of a listed company and a government bond are both securities.
Exam trap. This statement is false: Only shares are securities.
Primary market
The primary market is where new securities are issued by companies to raise funds directly from investors.
Example. A company launches an initial public offer to raise capital.
Exam trap. This statement is false: The primary market is where existing shares are traded among investors.
Secondary market
The secondary market is where already-issued securities are bought and sold between investors, on stock exchanges.
Example. An investor sells her listed shares through a broker on an exchange.
Exam trap. This statement is false: The secondary market raises fresh capital for the issuer.
Stock exchange
A stock exchange provides a platform on which members trade securities under rules and surveillance.
Example. Trades in listed shares are executed on a recognised exchange.
Exam trap. This statement is false: A stock exchange issues shares to the public.
Clearing corporation
A clearing corporation guarantees and settles trades made on an exchange, managing the obligations of members.
Example. The clearing corporation works out what each broker must pay or deliver.
Exam trap. This statement is false: The clearing corporation holds investors' securities in demat form.
Rolling settlement
In rolling settlement every trade is settled a fixed number of working days after the trading day; equity trades settle on a T+1 basis.
Example. A share bought on Monday is settled on the next working day.
Exam trap. This statement is false: A weekly account period settles all trades together on Friday.
Role of SEBI
SEBI regulates the securities market, protects investors and promotes market development.
Example. SEBI frames the rules that depositories and DPs must follow.
Exam trap. This statement is false: SEBI trades securities on behalf of investors.
Market intermediaries
Intermediaries such as brokers, depository participants, merchant bankers and registrars help investors use the market.
Example. An investor needs a broker to trade and a DP to hold shares.
Exam trap. This statement is false: Investors can trade on an exchange without any intermediary.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? A clearing corporation guarantees and settles trades made on an exchange, managing the obligations of members.
- Off-market transfer
- Record date
- Segregation of client assets
- Clearing corporation
Q2. Which term is described here? In rolling settlement every trade is settled a fixed number of working days after the trading day; equity trades settle on a T+1 basis.
- Demat request form
- Rolling settlement
- Freeze or suspension
- Constituent SGL
Q3. Which term is described here? A stock exchange provides a platform on which members trade securities under rules and surveillance.
- Stock exchange
- Registrar and transfer agent
- Account opening form and agreement
- Mismatch of details
Q4. Which statement best describes “Market intermediaries”?
- If the pledgor defaults, the pledgee can invoke the pledge, and securities are moved to the pledgee's account.
- An issuer is the company or body that issues securities and may offer them in demat form through the depository.
- A nominee may be a minor, with a guardian appointed to act for her.
- Intermediaries such as brokers, depository participants, merchant bankers and registrars help investors use the market.
Q5. Which term is described here? SEBI regulates the securities market, protects investors and promotes market development.
- Role of SEBI
- Transposition
- Tariff and charges
- Settlement cycle
Q6. Which statement about “Primary market” is correct?
- The primary market is where existing shares are traded among investors.
- Mismatched details never affect the allotment.
- The primary market is where new securities are issued by companies to raise funds directly from investors.
- Treasury bills pay a coupon every six months.
Frequently asked questions
How much of NISM Series VI comes from Unit 1?
Unit 1 (Introduction to securities market) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series VI Unit 1?
Primary and secondary markets. Market participants. Role of SEBI. Rolling settlement.
Are these NISM Series VI practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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