Secondary Markets
30 questions. Each answer is explained.
Question 1 of 10Practice · Series XII — Securities Markets Foundation
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Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | None · a wrong answer costs nothing beyond the mark |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XII Securities Markets Foundation
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 30 questions on Secondary Markets, with answers
Q1Which transaction takes place in the secondary market for securities?
Option A. A company allots fresh shares in its first public offer
Why it is wrong: Fresh allotment by the issuer belongs to the primary market.
Option B. A company places newly issued bonds with selected institutions
Why it is wrong: The issue of new bonds belongs to the primary market.
Option C. A company issues additional shares through a rights offer
Why it is wrong: A rights issue is a primary-market fundraising transaction.
Option D. An investor sells existing shares to another investor — Correct answer
Answer: D. A sale of existing shares between investors is a secondary-market transaction. The proceeds normally go to the seller rather than the issuer. Remember: Secondary markets support trading in securities already issued.
Hint, shown before you answer in practice mode: Common mistake: Classifying every exchange-related transaction as fresh capital raising. Think about whether an existing holding changes hands or a new security is issued.
XII-076easyconceptual
Q2What happens when physical share certificates are converted into dematerialised holdings?
Option A. The shares are converted into a bank deposit
Why it is wrong: Electronic securities remain securities rather than becoming bank deposits.
Option B. The shares are automatically sold at market price
Why it is wrong: Conversion of form does not itself execute a sale.
Option C. The holdings are recorded in electronic form — Correct answer
Option D. The company cancels the investor’s ownership
Why it is wrong: Dematerialisation changes the form of holding rather than cancelling ownership.
Answer: C. Dematerialisation converts physical certificates into electronic holdings. It does not itself change the investor’s ownership quantity. Remember: Dematerialisation changes the holding format, not the investment itself.
Hint, shown before you answer in practice mode: Common mistake: Confusing conversion into electronic form with sale or redemption. Focus on the form in which ownership is recorded.
XII-077easyconceptual
Q3What is the main purpose of Know Your Client checks when opening a trading account?
Option A. Verify the likely profit on every future trade
Why it is wrong: Identity verification does not forecast transaction returns.
Option B. Determine the issue price of securities bought later
Why it is wrong: Client identity checks do not set issue prices.
Option C. Establish and verify the client’s identity — Correct answer
Option D. Complete the settlement of each exchange transaction
Why it is wrong: Account-opening identity checks are not trade settlement.
Answer: C. Know Your Client checks establish and verify who the client is. They are different from choosing investments or predicting returns. Remember: Client identification is separate from investment selection.
Hint, shown before you answer in practice mode: Common mistake: Assuming that account-opening checks assess whether every future trade is suitable. Think about why an intermediary needs reliable client information.
XII-078easyconceptual
Q4Which document provides a broker’s confirmation of trades executed for a client?
Option A. Contract note — Correct answer
Option B. Share certificate
Why it is wrong: A share certificate records ownership rather than the details of a broker’s trades.
Option C. Credit rating report
Why it is wrong: A credit rating report assesses creditworthiness rather than confirming trade execution.
Option D. Issue prospectus
Why it is wrong: A prospectus describes an offer of securities rather than completed client trades.
Answer: A. A contract note confirms the trades executed for a client and records relevant transaction details. The client should check it against the trade information. Remember: A contract note is evidence of the recorded trade details.
Hint, shown before you answer in practice mode: Common mistake: Treating a general account statement as a substitute for checking trade confirmations. Recall the document that helps reconcile completed trades and charges.
XII-079easyconceptual
Q5For a buy limit order, what does the limit price represent?
Option A. The highest acceptable purchase price — Correct answer
Option B. The lowest acceptable purchase price
Why it is wrong: A buy limit sets a maximum price rather than a minimum.
Option C. The guaranteed price of execution
Why it is wrong: The order may execute at a better price or remain unfilled.
Option D. The last price at which anyone traded
Why it is wrong: A limit is chosen for the order and need not equal the last traded price.
Answer: A. The buy limit is the highest price the buyer agrees to pay. Execution can occur at that price or lower if matching supply is available. Remember: A buy limit caps price but does not guarantee execution.
Hint, shown before you answer in practice mode: Common mistake: Assuming a limit order must execute as soon as it is submitted. Think about which side of an unfavourable price the buyer wants to avoid.
XII-080easyconceptual
Q6What is the role of the trigger price in a stop-loss order?
Option A. Set the company’s minimum trading price
Why it is wrong: An individual stop trigger does not set a market-wide price floor.
Option B. Activate the order when the trigger condition is met — Correct answer
Option C. Guarantee that a position cannot make a loss
Why it is wrong: A stop order can execute unfavourably or remain unfilled depending on its type.
Option D. Guarantee execution exactly at the trigger price
Why it is wrong: Activation and execution price are different matters.
Answer: B. The trigger activates the stop order under its specified condition. It does not assure execution at the trigger price. Remember: A stop trigger is an activation condition, not a price guarantee.
Hint, shown before you answer in practice mode: Common mistake: Treating a stop-loss trigger as a guaranteed maximum loss. Distinguish the event that starts an order from the trade that may follow.
XII-081easyconceptual
Q7What does securities pay-in mean in the exchange settlement process?
Option A. Delivering securities due for settlement — Correct answer
Option B. Placing a fresh order on the trading screen
Why it is wrong: Order entry happens before clearing and settlement obligations are completed.
Option C. Paying a dividend directly to shareholders
Why it is wrong: A dividend is a corporate distribution rather than settlement delivery.
Option D. Crediting bought securities after settlement
Why it is wrong: That describes securities pay-out rather than pay-in.
Answer: A. Securities pay-in means delivering the securities owed for settlement. Pay-out is the distribution of securities to the receiving side. Remember: Pay-in fulfils an obligation and pay-out transfers the receivable.
Hint, shown before you answer in practice mode: Common mistake: Reversing the direction of securities pay-in and pay-out. Think about fulfilling the selling side’s delivery obligation.
XII-082easyconceptual
Q8Which distinction correctly separates clearing from settlement in a securities trade?
Option A. Clearing determines obligations and settlement fulfils them — Correct answer
Option B. Clearing fulfils obligations and settlement determines them
Why it is wrong: This reverses the core sequence of calculating and completing obligations.
Option C. Clearing matches investor orders and settlement calculates obligations
Why it is wrong: Order matching is trade execution, and settlement completes rather than merely calculates obligations.
Option D. Clearing verifies identity and settlement matches orders
Why it is wrong: Identity checks and order matching occur outside these core post-trade functions.
Answer: A. Clearing establishes the obligations arising from trades and settlement fulfils them. Settlement involves the required transfer of funds and securities. Remember: Calculation of obligations and fulfilment of obligations are separate steps.
Hint, shown before you answer in practice mode: Common mistake: Using clearing and settlement as though they describe the same task. Distinguish calculating what is owed from completing the transfer.
XII-083easyconceptual
Q9Why does a market collect margin against an open trading exposure?
Option A. To buy the entire underlying position at its full value
Why it is wrong: Margin is security for exposure rather than necessarily the full purchase value.
Option B. To pay the broker’s service fee in advance
Why it is wrong: Collateral is different from the broker’s fee for providing services.
Option C. To pay a guaranteed interest return to the trader
Why it is wrong: Margin collection does not create guaranteed interest income from a trade.
Option D. To provide collateral against potential losses — Correct answer
Answer: D. Margin provides collateral against losses and helps manage the risk of non-payment. It does not make the trade risk-free. Remember: Margin is risk collateral rather than a promised return or a trading fee.
Hint, shown before you answer in practice mode: Common mistake: Thinking that depositing margin prevents losses on the position. Focus on the risk faced when a participant may owe money later.
XII-084easyconceptual
Q10Two buy orders offer ₹201 and ₹202 for the same share. Under price priority, which receives priority against an incoming market sell?
Option A. The order with the smaller quantity
Why it is wrong: Quantity alone does not override the better bid price.
Option B. The buy order at ₹201
Why it is wrong: The lower bid offers the seller a worse price.
Option C. The buy order at ₹202 — Correct answer
Option D. Both orders always receive equal shares
Why it is wrong: Price priority applies before any assumption of equal allocation.
Answer: C. The ₹202 buy order receives price priority because it offers the seller more per share. Time priority matters when prices are equal. Remember: The highest bid has price priority among buy orders.
Hint, shown before you answer in practice mode: Common mistake: Applying the buyer’s preference for a low price to ranking competing bids. View the competing bids from the seller’s perspective.
XII-085mediumapplication
Q11Two unmodified buy orders at ₹150 enter at 10:00 and 10:01. Which has priority when price and other order conditions match?
Option A. The order entered at 10:01
Why it is wrong: A later order does not displace an earlier equal-price order.
Option B. Both orders share every execution equally
Why it is wrong: Price-time priority does not generally split every fill equally among equal-price orders.
Option C. The order entered at 10:00 — Correct answer
Option D. The order with the larger quantity
Why it is wrong: At equal prices, quantity does not replace the stated time-priority rule.
Answer: C. The 10:00 order has time priority because it entered first at the same price. The question assumes no modification that changes queue priority. Remember: At an equal price, earlier orders normally stand ahead in the queue.
Hint, shown before you answer in practice mode: Common mistake: Assuming all orders at the same price execute simultaneously. After matching prices, recall the next priority used in the queue.
XII-086mediumapplication
Q12A share last traded at ₹100. The best ask is ₹101 with sufficient quantity. At what price would a small market buy initially match?
Option A. ₹99
Why it is wrong: A lower bid is not the price at which available sellers are offering shares.
Option B. ₹101 — Correct answer
Option C. ₹100
Why it is wrong: The last traded price is a past execution, not necessarily the current selling quote.
Option D. ₹102
Why it is wrong: The order need not use a worse price while enough shares are available at ₹101.
Answer: B. The market buy initially matches the available ask of ₹101. The last traded price does not promise a new execution at ₹100. Remember: A market buy uses available sell orders rather than a historical trade price.
Hint, shown before you answer in practice mode: Common mistake: Expecting every market order to execute at the last traded price. Look for the current price offered by sellers, not the previous trade.
XII-087mediumapplication
Q13The best bid is ₹248 and the best ask is ₹250. What is the quoted bid-ask spread per share?
Option A. ₹1
Why it is wrong: ₹1 is half the gap between the bid and ask.
Option B. ₹249
Why it is wrong: ₹249 is the midpoint rather than the spread.
Option C. ₹498
Why it is wrong: Adding the two quotes does not measure their gap.
Option D. ₹2 — Correct answer
Answer: D. The bid-ask spread is ₹2 per share. Spread = best ask − best bid = ₹250 − ₹248 = ₹2. Remember: The spread is the difference between the best ask and best bid.
Hint, shown before you answer in practice mode: Common mistake: Confusing the midpoint of the quotes with the spread. Measure the gap between the two best quotes.
XII-088mediumnumerical
Q14An investor buys 80 shares at ₹125 and sells them at ₹133. What is the gross profit before charges?
Option A. ₹10,000
Why it is wrong: ₹10,000 is the purchase value rather than the profit.
Option B. ₹8
Why it is wrong: ₹8 is the gain on one share rather than all 80 shares.
Option C. ₹10,640
Why it is wrong: ₹10,640 is the sale value before deducting the purchase cost.
Option D. ₹640 — Correct answer
Answer: D. The gross profit is ₹640 before charges. Gain per share = ₹133 − ₹125 = ₹8. Total gain = 80 × ₹8 = ₹640. Remember: Gross trading profit uses both the price difference and quantity.
Hint, shown before you answer in practice mode: Common mistake: Reporting sale proceeds as profit. First find the change per share, then account for the quantity.
XII-089mediumnumerical
Q15A trade earns ₹900 before costs. Total hypothetical charges are ₹140. What is the net profit?
Option A. ₹1,040
Why it is wrong: Charges reduce profit rather than increase it.
Option B. ₹760 — Correct answer
Option C. ₹900
Why it is wrong: ₹900 is profit before deducting the stated charges.
Option D. ₹620
Why it is wrong: ₹620 deducts the same ₹140 charge twice.
Answer: B. The net profit is ₹760 after the stated charges. Net profit = ₹900 − ₹140 = ₹760. Remember: Trading costs reduce gross profit to net profit.
Hint, shown before you answer in practice mode: Common mistake: Deducting a stated total charge once for each side again. Use the total charge once, as an expense.
XII-090mediumnumerical
Q16For the same share and settlement, 120 bought shares and 45 sold shares are eligible for netting. What is the net securities receivable?
Option A. 75 shares — Correct answer
Option B. 120 shares
Why it is wrong: The gross purchase quantity ignores the sale obligation.
Option C. 165 shares
Why it is wrong: Adding the quantities ignores the offset from sales.
Option D. 45 shares
Why it is wrong: This is the gross sale quantity rather than the net receivable.
Answer: A. The net receivable is 75 shares under the stated netting assumption. Net quantity = 120 bought − 45 sold = 75 shares. Remember: Eligible opposite obligations can be offset within the same settlement.
Hint, shown before you answer in practice mode: Common mistake: Applying netting without checking that the trades are eligible. Offset the eligible sale quantity against the purchase quantity.
XII-091mediumnumerical
Q17A seller owes delivery of 100 shares but supplies only 70. Which settlement problem has occurred?
Option A. A cancellation of all 100 traded shares
Why it is wrong: Partial non-delivery does not by itself mean the original trade was cancelled.
Option B. A short delivery of 30 shares — Correct answer
Option C. An excess delivery of 30 shares
Why it is wrong: The seller delivered less than the obligation, not more.
Option D. A cash dividend shortfall of 30 shares
Why it is wrong: The missing quantity concerns trade settlement, not a dividend.
Answer: B. A short delivery of 30 shares has occurred because 100 shares were due and only 70 were supplied. The shortage must be handled under the applicable settlement process. Remember: Securities delivered must be compared with the settlement obligation.
Hint, shown before you answer in practice mode: Common mistake: Assuming a sale is complete merely because an order has executed. Compare the delivery obligation with the quantity actually supplied.
XII-092mediumapplication
Q18A company has 12 lakh outstanding shares trading at ₹75 each. What is its full market capitalisation?
Option A. ₹90 lakh
Why it is wrong: ₹90 lakh understates the product by a factor of ten.
Option B. ₹75 crore
Why it is wrong: The per-share price must be multiplied by the actual number of shares.
Option C. ₹9 crore — Correct answer
Option D. ₹12 crore
Why it is wrong: The share count alone does not determine the company’s market value.
Answer: C. The full market capitalisation is ₹9 crore. Value = 12 lakh shares × ₹75 = ₹900 lakh = ₹9 crore. Remember: Full market capitalisation uses all outstanding shares at market price.
Hint, shown before you answer in practice mode: Common mistake: Mixing up lakh and crore when multiplying price by share count. Value all outstanding shares at the quoted market price.
XII-093mediumnumerical
Q19A buy limit order is priced at ₹98 while available sellers ask ₹100 or more. Why may the order remain unexecuted?
Option A. Every limit order must wait until market close
Why it is wrong: A limit order can execute earlier when compatible orders are available.
Option B. No available seller meets the buyer’s price limit — Correct answer
Option C. The order must execute at the last traded price
Why it is wrong: Past execution prices do not override a buyer’s limit.
Option D. The exchange must raise the limit to ₹100
Why it is wrong: The exchange does not automatically increase the buyer’s limit to force a trade.
Answer: B. The order may remain unexecuted because the available asks exceed ₹98. A limit protects price but does not ensure a matching seller. Remember: An unfilled limit order can simply reflect incompatible prices.
Hint, shown before you answer in practice mode: Common mistake: Treating an unfilled order as an error even when its price is outside the market. Compare the buyer’s maximum with the sellers’ current offers.
XII-094mediumapplication
Q20What is the main purpose of a market-wide circuit breaker?
Option A. Restore every security to its previous closing price
Why it is wrong: A trading halt does not reset all security prices.
Option B. Compensate every investor for losses during volatility
Why it is wrong: A circuit breaker pauses trading rather than paying compensation.
Option C. Prevent listed companies from publishing any new information
Why it is wrong: The halt is not a general ban on company disclosures.
Option D. Pause trading after a specified extreme market move — Correct answer
Answer: D. A market-wide circuit breaker pauses trading after a specified extreme move. The pause allows participants to reassess information and risk. Remember: A circuit breaker is a market-stability pause, not loss insurance.
Hint, shown before you answer in practice mode: Common mistake: Assuming a temporary halt guarantees that prices will recover. Think about the role of a pause during unusually rapid market movement.
XII-095mediumconceptual
Q21What is the main function of SEBI’s SCORES platform for investors?
Option A. Execute share purchases at the best available ask
Why it is wrong: Trade execution is not the role of a complaint platform.
Option B. Insure every loss caused by a falling share price
Why it is wrong: A grievance platform does not insure ordinary market losses.
Option C. Recommend a suitable portfolio for every complainant
Why it is wrong: Complaint handling is not personalised portfolio management.
Option D. Facilitate filing and tracking securities-market grievances — Correct answer
Answer: D. SCORES facilitates the filing and tracking of securities-market grievances against covered entities. Investors should first raise the issue with the entity concerned. Remember: SCORES supports grievance redressal rather than trading or return protection.
Hint, shown before you answer in practice mode: Common mistake: Using a complaint mechanism as though it guarantees recovery of market losses. Think about the channel used to raise and follow an unresolved complaint.
XII-096mediumregulatory
Q22Traders arrange sham trades to create a false appearance of demand. How should this conduct be classified?
Option A. Legitimate market-making activity
Why it is wrong: Market making provides genuine trading interest rather than sham demand.
Option B. Ordinary price arbitrage
Why it is wrong: Arbitrage exploits real price differences rather than fabricating market activity.
Option C. Fraudulent or unfair market conduct — Correct answer
Option D. Routine portfolio rebalancing
Why it is wrong: Rebalancing changes genuine investment exposures rather than creating a false appearance of demand.
Answer: C. Creating a false appearance of trading is fraudulent or unfair market conduct. Genuine price discovery depends on activity that is not deliberately misleading. Remember: Artificial trading activity can distort the information other investors rely on.
Hint, shown before you answer in practice mode: Common mistake: Assuming executed trades must represent genuine economic demand. Ask whether the displayed demand reflects genuine market interest.
XII-097mediumregulatory
Q23What is the basic obligation of a borrower under a securities lending and borrowing arrangement?
Option A. Replace the shares with unrelated securities at will
Why it is wrong: The borrower cannot freely substitute an unrelated investment for the agreed security.
Option B. Return equivalent securities under the agreed terms — Correct answer
Option C. Keep the borrowed shares without any return obligation
Why it is wrong: Borrowing does not remove the duty to return equivalent securities.
Option D. Return only any dividends received during the loan
Why it is wrong: Dividends alone do not discharge the obligation to return equivalent securities.
Answer: B. The borrower must return equivalent securities under the agreed lending terms. Borrowing is different from an outright purchase. Remember: Securities borrowing creates a return obligation.
Hint, shown before you answer in practice mode: Common mistake: Treating access to borrowed securities as permanent ownership without obligations. Distinguish borrowing a security from buying it permanently.
XII-098mediumconceptual
Q24What mainly distinguishes an over-the-counter securities trade from an exchange order-book trade?
Option A. The transaction must always involve a newly issued security
Why it is wrong: Over-the-counter transactions can involve existing securities.
Option B. The parties negotiate the trade outside the exchange order book — Correct answer
Option C. The security cannot have a credit rating
Why it is wrong: Credit rating status does not determine whether negotiation is over the counter.
Option D. The transaction has no settlement obligation
Why it is wrong: Negotiated trades still require settlement of their obligations.
Answer: B. An over-the-counter trade is negotiated outside the exchange order book. It can still be subject to regulatory, reporting and settlement requirements. Remember: Over-the-counter describes a trading arrangement rather than an exemption from obligations.
Hint, shown before you answer in practice mode: Common mistake: Assuming that negotiated trading means no regulation or reporting. Focus on how counterparties agree on the trade.
XII-099mediumconceptual
Q25A market buy needs 150 shares. Available asks are 100 shares at ₹50 and 100 at ₹52. With no order-book changes, what is the average execution price?
Option A. ₹51.00
Why it is wrong: An equal average ignores that different quantities execute at the two prices.
Option B. ₹50.00
Why it is wrong: Only 100 shares are available at ₹50, which cannot fill the complete order.
Option C. ₹52.00
Why it is wrong: Only the final 50 shares need to trade at ₹52.
Option D. ₹50.67 — Correct answer
Answer: D. The average execution price is approximately ₹50.67 per share. Cost = 100 × ₹50 + 50 × ₹52 = ₹7,600. Average = ₹7,600 ÷ 150 = ₹50.6667, rounded to ₹50.67. Remember: An order that uses several price levels needs a quantity-weighted average price.
Hint, shown before you answer in practice mode: Common mistake: Taking a simple average of price levels without using the traded quantities. Fill the better-priced quantity first and weight each price by its executed quantity.
XII-100hardnumerical
Q26The best bid is ₹198 and best ask is ₹202. A buy executes entirely at ₹202. What is its impact cost relative to the quote midpoint?
Option A. 1% — Correct answer
Option B. 4%
Why it is wrong: The ₹4 spread is not a four-percent buy-side deviation.
Option C. 2%
Why it is wrong: 2% compares the full spread with the midpoint rather than the buy-price deviation.
Option D. 0.5%
Why it is wrong: The buy-price deviation is ₹2 on a midpoint of ₹200, not ₹1.
Answer: A. The impact cost is 1% relative to the midpoint. Midpoint = (₹198 + ₹202) ÷ 2 = ₹200. Buy-side deviation = ₹202 − ₹200 = ₹2. Impact cost = ₹2 ÷ ₹200 × 100 = 1%. Remember: Impact cost depends on the execution price relative to the chosen reference price.
Hint, shown before you answer in practice mode: Common mistake: Using the full spread instead of the buy-price deviation from the midpoint. First locate the quote midpoint, then compare the purchase price with it.
XII-101hardnumerical
Q27A company has 20 lakh shares at ₹40. Only 35% are treated as free float. What is its free-float market capitalisation?
Option A. ₹5.2 crore
Why it is wrong: ₹5.2 crore values the non-free-float portion rather than the free float.
Option B. ₹28 crore
Why it is wrong: ₹28 crore includes a tenfold unit-conversion error.
Option C. ₹8 crore
Why it is wrong: ₹8 crore is full market capitalisation before applying the free-float share.
Option D. ₹2.8 crore — Correct answer
Answer: D. The free-float market capitalisation is ₹2.8 crore. Full value = 20 lakh × ₹40 = ₹8 crore. Free-float value = ₹8 crore × 35% = ₹2.8 crore. Remember: Free-float value includes only the stated shares available for public trading.
Hint, shown before you answer in practice mode: Common mistake: Using promoter or restricted holdings as though they were all free float. Value all shares first, then retain only the stated free-float proportion.
XII-102hardnumerical
Q28Eligible trades buy 100 shares at ₹200 and sell 40 at ₹205 in one settlement. Total hypothetical charges are ₹120. What is the net cash payable?
Option A. ₹11,920 — Correct answer
Option B. ₹28,320
Why it is wrong: Adding the sale proceeds to purchases reverses their cash-flow direction.
Option C. ₹11,800
Why it is wrong: ₹11,800 offsets trade values but omits the stated charges.
Option D. ₹12,120
Why it is wrong: Valuing the remaining 60 shares at ₹200 ignores the higher actual sale price.
Answer: A. The net cash payable is ₹11,920. Purchase value = 100 × ₹200 = ₹20,000. Sale proceeds = 40 × ₹205 = ₹8,200. Net payable = ₹20,000 − ₹8,200 + ₹120 = ₹11,920. Remember: Cash netting uses transaction values rather than only net share quantity.
Hint, shown before you answer in practice mode: Common mistake: Multiplying net shares by one price when purchases and sales had different prices. Offset actual sale proceeds against purchase value before adding the stated cost.
XII-103hardnumerical
Q29A buy limit for 180 shares is ₹101. Asks are 60 at ₹100, 80 at ₹101 and 100 at ₹102. With no changes, how many can fill immediately?
Option A. 60 shares
Why it is wrong: Shares offered exactly at the ₹101 limit are also eligible.
Option B. 180 shares
Why it is wrong: The final 40 shares cannot be bought above the ₹101 limit.
Option C. 140 shares — Correct answer
Option D. 240 shares
Why it is wrong: This includes shares above the limit and exceeds the submitted quantity.
Answer: C. Only 140 shares can fill immediately within the limit. Eligible quantity = 60 at ₹100 + 80 at ₹101 = 140. The remaining 40 shares cannot match the ₹102 offer. Remember: A limit order may fill partly when compatible quantity is insufficient.
Hint, shown before you answer in practice mode: Common mistake: Assuming sufficient total order-book depth means every price level is eligible. Include available quantities only at prices compatible with the limit.
XII-104hardnumerical
Q30An investor loses money solely because share prices fall. The broker fulfils every obligation. Why is an exchange Investor Protection Fund claim unsuitable?
Option A. Ordinary market losses are not eligible broker-default claims — Correct answer
Option B. A contract note converts market losses into insured losses
Why it is wrong: Evidence of a trade does not provide insurance against price declines.
Option C. Every exchange-traded share carries capital protection
Why it is wrong: Exchange trading does not provide a guarantee of invested capital.
Option D. Every loss becomes eligible once the shares are sold
Why it is wrong: Realising a market loss does not make it a broker-default claim.
Answer: A. Ordinary market losses are not the same as eligible broker-default claims. The fund’s compensation role relates to admitted claims under its rules, not every price decline. Remember: Investor-protection mechanisms do not remove normal investment risk.
Hint, shown before you answer in practice mode: Common mistake: Interpreting the name of a protection fund as blanket market-loss insurance. Distinguish an investment losing value from an intermediary failing to meet obligations.
XII-105hardapplication
Secondary Markets: common questions
How many practice questions are there on Secondary Markets?
30 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 6 practice topics for NISM Series XII, which has 150 questions in total.
Are these real NISM Series XII questions on Secondary Markets?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XII?
No. NISM applies no negative marking to Series XII. A wrong answer costs nothing beyond the mark you did not earn, so a blank is never better than an attempt. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Mutual Funds
30 questions on Mutual Funds. Its quiz opens on that unit.
Open Mutual FundsPaper Trading Try it on the practice trading desk