Primary and Secondary Market Quiz
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Questions and Answers

What does ASBA stand for in the context of share applications?

  • Application System for Blocked Assets
  • Automatic Stock Brokerage Account
  • Allotment Supported by Bank Account
  • Application Supported by Blocked Amount (correct)

    • Which of the following is NOT considered an intermediary in the new issue market?

  • Underwriters
  • Legal Advisors (correct)
  • Brokers
  • Merchant Bankers

    • Who manages the public issues in the primary market according to SEBI regulations?

  • Depositories
  • Underwriters
  • Merchant Bankers (correct)
  • Syndicate Members

    • What is the role of a Book Running Lead Manager (BRLM)?

    <p>To lead the marketing of public issues</p> Signup and view all the answers

    How many managers to an issue are allowed if the public issue size exceeds 400 crores?

    <p>Five or more managers</p> Signup and view all the answers

    What major function do merchant bankers perform in the primary market?

    <p>Management of public issues</p> Signup and view all the answers

    Which role involves assisting in the drafting of prospectuses and application forms?

    <p>Merchant Bankers</p> Signup and view all the answers

    Who acts as the institution to subscribe to securities as a consultant?

    <p>Merchant Bankers</p> Signup and view all the answers

    What is the year of incorporation for the National Stock Exchange (NSE)?

    <p>1992</p> Signup and view all the answers

    Which organization is empowered to grant recognition to stock exchanges in India?

    <p>Security and Exchange Board of India (SEBI)</p> Signup and view all the answers

    What is the primary objective of the National Stock Exchange?

    <p>To ensure comprehensive nationwide securities trading facilities</p> Signup and view all the answers

    Which of the following is NOT a segment of operations for the NSE?

    <p>Foreign Exchange Market Segment</p> Signup and view all the answers

    Which of the following instruments can be traded in the Wholesale Debt Market segment of NSE?

    <p>Government Securities</p> Signup and view all the answers

    Who is considered the lead promoter of the National Stock Exchange?

    <p>IDBI</p> Signup and view all the answers

    How does one trade on the National Stock Exchange?

    <p>Using an automated screen based trading system</p> Signup and view all the answers

    What is the minimum net worth requirement for a member seeking recognition from NSE?

    <p>₹ 2 crores</p> Signup and view all the answers

    What is the primary role of underwriters in an issuing company?

    <p>To guarantee the marketability of shares</p> Signup and view all the answers

    Who can act as underwriters in the issuance of shares?

    <p>Any financial institutions including banks</p> Signup and view all the answers

    What is the commission charged by underwriters for their services called?

    <p>Underwriting commission</p> Signup and view all the answers

    Which of the following statements about brokers to the issue is true?

    <p>Companies can hire any number of brokers for marketing</p> Signup and view all the answers

    What is the primary responsibility of registrars to the issue?

    <p>Collecting and processing application forms</p> Signup and view all the answers

    Which of the following is true concerning the role of brokers in share issuance?

    <p>They follow up on the subscription process</p> Signup and view all the answers

    What is the purpose of exercising a green shoe option?

    <p>To purchase or sell equity shares when the share price fluctuates significantly</p> Signup and view all the answers

    Who must registrars consult with before being appointed for an issue?

    <p>The lead managers of the issue</p> Signup and view all the answers

    What characterizes a private placement of securities?

    <p>Securities are issued to a select group not exceeding 50 participants</p> Signup and view all the answers

    What must occur for a preferential issue to take place?

    <p>A special resolution passed by the shareholders</p> Signup and view all the answers

    What role do financial institutions play when acting as underwriters?

    <p>They underwrite risk by committing to share purchases</p> Signup and view all the answers

    Which type of placement is exclusively for Qualified Institutional Buyers (QIBs)?

    <p>Qualified Institutions Placement (QIP)</p> Signup and view all the answers

    What regulates the pricing of securities in a preferential issue?

    <p>The average closing price over a fixed period</p> Signup and view all the answers

    Who manages a Qualified Institutions Placement (QIP)?

    <p>A merchant banker</p> Signup and view all the answers

    Which of the following is NOT a type of private placement?

    <p>Public Stock Offering</p> Signup and view all the answers

    How many persons can receive securities in a private placement?

    <p>No more than 50</p> Signup and view all the answers

    What is firm underwriting?

    <p>The underwriter guarantees to buy a certain number of shares regardless of public subscription.</p> Signup and view all the answers

    Which of the following is a feature of the new issue market?

    <p>It facilitates the raising of capital through new issues of shares.</p> Signup and view all the answers

    How can new shares be distributed to investors?

    <p>Through public issues, private placements, rights issues, and bonus issues.</p> Signup and view all the answers

    What is a Public Issue classified as?

    <p>Both Initial Public Offer (IPO) and Further Public Offer (FPO).</p> Signup and view all the answers

    Which of the following best describes the role of brokers in underwriting?

    <p>Brokers act as non-institutional underwriters.</p> Signup and view all the answers

    What regulatory authority oversees the primary market?

    <p>Securities and Exchange Board of India (SEBI).</p> Signup and view all the answers

    Which of these is NOT a method of floating new issues?

    <p>Investment Trust Offer (ITO).</p> Signup and view all the answers

    Which institutional underwriter is mentioned as an example?

    <p>LIC.</p> Signup and view all the answers

    What types of entities are allowed to have membership in the WDM segment of the NSE?

    <p>Body corporates, subsidiaries of banks, and financial institutions</p> Signup and view all the answers

    Which of the following is NOT a subsidiary of the NSE?

    <p>Bombay Stock Exchange (BSE)</p> Signup and view all the answers

    Which index was launched by BSE in 1986?

    <p>SENSEX</p> Signup and view all the answers

    In which year did BSE replace its open outcry system with the BSE On-line Trading facility?

    <p>1995</p> Signup and view all the answers

    What is the primary purpose of the Bombay Stock Exchange (BSE)?

    <p>To facilitate capital raising for corporations</p> Signup and view all the answers

    Which of the following statements about NSE is correct?

    <p>NSE has a derivatives segment for trading futures and options.</p> Signup and view all the answers

    As of now, how many scrips are traded on BSE?

    <p>More than 7,700</p> Signup and view all the answers

    Which of the following is true about the management structure of BSE?

    <p>It consists of a Board of Directors and a management team.</p> Signup and view all the answers

    Study Notes

    Primary Market and Secondary Market

    • The primary market is where companies issue shares for the first time, allowing the public to subscribe.
    • It encompasses various locations, not a specific place, and includes all institutions involved in new issues.
    • Underwriters, merchant banks, brokers, and investors are integral parts of the primary market.
    • A key function of the primary market facilitates the transfer of resources from savers to users.
    • Origination: This involves a preliminary analysis of a company's proposed projects by sponsors (often merchant bankers).
    • Underwriting: An agreement where the underwriter guarantees the sale of a certain number of shares if the public subscription is insufficient, or takes up the shares.
    • Distribution: Sale to investors, managed by intermediaries like merchant banks and brokers.

    Functions of New Issue Market

    • Facilitates resource transfer from savers to entities needing funds.
    • Companies and governments utilize this market for funding projects, modernization, and expansion.
    • Origination, underwriting, and distribution are the core services.

    Methods of Floating New Issues

    • Public Issue (IPO): Initial Public Offering or further public offerings (FPO).
    • Private Placement: Issue to a select group of investors (usually institutional investors), not exceeding 50.

    Public Issue

    • Initial Public Offer (IPO): First time offer of company's shares to the public.
    • Further Public Offer (FPO): Subsequent offer of shares (from a company already listed in the stock exchange).
    • Offer through Prospectus: Companies detailing company information.
    • Offer for Sale: Companies selling existing shares to investors.

    Forms of Offer Documents

    • Prospectus (public issue/offer for sale)
    • Letter of Offer (rights issue)

    Categories of Investors

    • Retail Individual Investors (RII)
    • Qualified Institutional Buyers (QIB)
    • Non-Institutional Investors (NII)

    Private Placement

    • Direct issue to investors, without a public offer.
    • Types: Preferential Issue, Qualified Institutional Placement (QIP), and Institutional Placement Programme (IPP).

    Rights Issue

    • Offering of shares to existing shareholders, in proportion to their existing ownership.

    Bonus Issue

    • Issue of shares to existing shareholders out of a company's free reserves, at no cost.

    Employee Stock Option Plans (ESOP)

    • Employees offered options to purchase company shares at a predetermined future date.
    • Types: Employee Stock Option Scheme (ESOS), Employee Stock Purchase Scheme (ESPP), and Share Appreciation Rights (SARS), or Phantom Shares which provides appreciation rights instead of shares.

    Methods of Pricing an Issue

    • Fixed Price Method
    • Book Building

    Book Built Issue

    • Involves creating a demand for the securities.
    • Price is decided based on demand for the security.

    Book Runners

    • Intermediaries in the book building process.
    • Assist the company in building the book of bids.

    Stock Exchanges

    • Organized market for purchasing and selling shares.

    • Facilitate the trading of securities.

    • Provide a continuous market for securities.

    • Help in the evaluation of securities and their prices.

    • Facilitate the raising of capital for companies.

    • Manage and control speculative activities in the markets.

    • Facilitate wider distribution of securities.

    Secondary Market

    • Existing Securities are traded.
    • Securities are sold and bought by investors/holders.
    • Stock exchanges, depositories and participants in the market are parts of this market.

    Insider Trading

    • Illegal trading by individuals with access to non-public, price-sensitive information.

    Derivative Instruments

    • Contracts where value is derived from other assets(commodities, currency, or bonds).

    Securitised Debt Instruments

    • Repackaging of illiquid financial assets into marketable securities.

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    Primary Market & Secondary Market PDF

    Description

    Test your understanding of the primary and secondary markets. This quiz covers the roles, functions, and key participants involved in the new issue market. Delve into various aspects of share issuance and distribution.

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