Introduction

A securities market is a platform where financial instruments such as shares, bonds, debentures and derivatives are issued, bought and sold. It enables issuers to raise capital and investors to obtain tradable assets.

The market provides price discovery through the interaction of supply and demand, and it offers liquidity, allowing investors to convert securities into cash with minimal cost.

For the NISM exam, remember that the term covers both organised exchanges (e.g., NSE, BSE) and over‑the‑counter (OTC) venues, and questions often test the distinction between these venues.

The primary market is where new securities are created and sold for the first time, typically through an Initial Public Offering (IPO) or a private placement. Proceeds go directly to the issuing company, facilitating capital formation.

The secondary market deals with the resale of existing securities among investors. No new capital is raised; instead, ownership changes hands, providing liquidity and enabling price discovery.

Exam tip: Questions may ask which market a transaction belongs to. Look for keywords like “issued”, “new issue”, or “IPO” for primary, and “traded”, “sold”, or “bought” after issuance for secondary.

Issuers are corporations or governments that create securities to raise funds. They must comply with SEBI’s disclosure norms and file a prospectus for public issues.

Investors include retail, institutional and foreign investors. Their decisions drive demand, influencing prices and liquidity.

Intermediaries such as stock brokers, depositories, clearing corporations and merchant bankers facilitate trade, settlement and custody. Understanding their roles helps answer operational questions in the exam.

The market performs four core functions: Price Discovery, Liquidity Provision, Capital Formation and Risk Sharing. These functions enable efficient allocation of resources in the economy.

Price discovery occurs as buyers and sellers submit orders, generating market‑determined prices. Liquidity allows investors to enter or exit positions quickly without large price impact.

Capital formation channels savings into productive assets, while risk sharing lets investors diversify by holding a mix of securities. NISM questions frequently ask you to match a function with its description.

The Securities and Exchange Board of India (SEBI) is the principal regulator. It issues regulations, monitors market conduct, and protects investor interests. Key SEBI regulations include the SEBI (Issue of Capital and Disclosure) Regulations and the SEBI (Prohibition of Insider Trading) Regulations.

Other bodies such as the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and the Depository Participants (DPs) operate under SEBI’s oversight but manage day‑to‑day trading and settlement.

Exam candidates should know that any breach of SEBI regulations can lead to penalties, suspension of trading rights, or criminal prosecution.

Equity securities represent ownership in a company and include common shares and preference shares. They offer capital appreciation and dividends.

Debt securities such as bonds, debentures and commercial paper provide fixed interest income and have a defined maturity.

Derivatives like futures and options derive value from underlying assets and are used for hedging or speculation. Mutual fund units, though not listed on exchanges, are also traded through AMCs and are part of the broader securities ecosystem.

The introductory concepts form the basis for many multiple‑choice questions that test definitions, market functions and participant roles. A solid grasp prevents mistakes in later, more complex topics like settlement cycles and risk metrics.

Common exam pitfalls include mixing up primary/secondary market definitions, overlooking the regulator (SEBI), or forgetting that market capitalisation is a product of price and shares.

By mastering this sub‑topic, candidates can quickly eliminate wrong options and improve their overall score.