Securities Market

A securities market is a platform where financial instruments such as shares, bonds, debentures and derivatives are issued, bought, and sold. It provides liquidity, price discovery and a channel for capital formation, enabling companies to raise funds and investors to earn returns.

In India, the securities market is broadly divided into two segments: the primary market, where new securities are issued to the public for the first time, and the secondary market, where existing securities are traded among investors. The primary market is crucial for capital raising, while the secondary market ensures that investors can exit their positions at prevailing market prices.

For the NISM exam, you will often be asked to identify which activities belong to the primary market (e.g., IPOs, FPOs) versus the secondary market (e.g., daily trading on NSE/BSE). Remember that the presence of a stock exchange indicates secondary market activity.

The securities market involves a diverse set of participants, each playing a specific role in ensuring smooth market operations. The primary participants include issuers (companies, governments), investors (retail, institutional), and intermediaries such as stock brokers, depositories, and clearing corporations.

Regulators, chiefly the Securities and Exchange Board of India (SEBI), oversee market integrity, protect investor interests and enforce compliance. Other important bodies include the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and the Depository Participants (DPs) that manage dematerialisation.

Exam questions frequently test your ability to match a participant with its function. For example, a broker facilitates trade execution, while a clearing corporation ensures settlement and risk mitigation.

The Indian securities market hosts several segments, each with distinct instruments. The equity segment deals with shares of companies, the debt segment includes government and corporate bonds, and the derivatives segment offers futures and options on indices and individual securities.

Additional instruments such as mutual funds, exchange‑traded funds (ETFs) and real‑estate investment trusts (REITs) provide diversified exposure and are regulated under the same market framework. Understanding which instrument belongs to which segment helps you answer classification questions.

Typical exam items ask you to identify the segment of a given security (e.g., a corporate bond belongs to the debt market) or to recognise the risk profile associated with each segment.

Market capitalisation (often shortened to "market cap") measures the total market value of a listed company's equity. It is calculated by multiplying the current share price by the total number of shares that are publicly held.

Why it matters: Market cap determines a company's classification (large‑cap, mid‑cap, small‑cap) and influences portfolio construction, risk assessment and regulatory reporting. The NISM exam frequently asks you to compute market cap or to identify the cap category based on a given value.

Common mistake: Using the face value of a share instead of the market price. Remember, market cap reflects market perception, not the nominal value recorded in the balance sheet.

SEBI is the apex regulator for the securities market in India. Its core responsibilities include framing regulations, supervising market intermediaries, and protecting investor interests. Key regulations relevant to the NISM exam are the SEBI (Issue of Capital and Disclosure) Regulations, SEBI (Prohibition of Insider Trading) Regulations, and the SEBI (Stock Brokers) Regulations.

Every market participant must comply with Know Your Customer (KYC) norms, maintain adequate net‑worth, and adhere to reporting standards. Failure to comply can lead to penalties, suspension of trading rights or even criminal prosecution.

Exam questions may present a scenario where a broker violates a specific SEBI regulation; you will need to identify the breach and the appropriate remedial action.