Market Participants in the Securities Market
15 questions. Each answer is explained.
Question 1 of 10Practice · Series VII — Securities Operations and Risk Management
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More units in NISM Series VII
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 50% · 50 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series VII Securities Operations and Risk Management
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 15 questions on Market Participants in the Securities Market, with answers
Q1In providing demat services to an investor, a depository participant acts as an agent of the:
Option A. Issuing company
Why it is wrong: The issuer relationship is associated with an RTA, not the DP role tested here.
Option B. Stock exchange
Why it is wrong: An exchange operates a trading venue rather than the depository agency arrangement.
Option C. Depository — Correct answer
Option D. Clearing bank
Why it is wrong: A clearing bank handles settlement money, not this demat-services agency.
Answer: C. A DP provides depository services as an agent of the depository. The participant is the investor-facing channel through which depository services are provided. The agency relationship being tested is with the depository, not with the issuer or the trading venue. Remember: For the depository agency relationship, connect DP with depository.
Hint, shown before you answer in practice mode: Common mistake: Confusing the organisation whose securities are held with the infrastructure that holds them.
VII-006easyconceptual
Q2Outside an IFSC, which authority has the principal regulatory role in India's money and foreign-exchange markets?
Option A. Reserve Bank of India — Correct answer
Option B. Securities and Exchange Board of India
Why it is wrong: SEBI does not replace RBI as the principal authority for the two markets specified.
Option C. International Financial Services Centres Authority
Why it is wrong: The stem expressly excludes the IFSC framework.
Option D. Pension Fund Regulatory and Development Authority
Why it is wrong: Pension-sector regulation is not the market-regulation role described.
Answer: A. RBI is the authority relevant to both markets in the scope stated. The question asks about the ordinary Indian money and foreign-exchange framework, not the IFSC regime. RBI exercises the relevant money-market powers and foreign-exchange management functions. This does not imply that every intermediary or exchange-traded product has no other applicable regulator. Remember: Read both the market and the jurisdiction before choosing its principal regulator.
Hint, shown before you answer in practice mode: Common mistake: Turning a principal-regulator question into a claim that only one regulator can ever be involved.
VII-007easyregulatory
Q3An institutional investor needs safekeeping of securities and support for settling its securities transactions. Which intermediary is primarily associated with this service?
Option A. Registrar and transfer agent
Why it is wrong: An RTA acts for the issuer in investor-record and related securities-service processes.
Option B. Credit rating agency
Why it is wrong: A credit rating agency assesses credit risk rather than providing the custody service described.
Option C. Merchant banker
Why it is wrong: A merchant banker is not the primary provider of the safekeeping service in this question.
Option D. Custodian — Correct answer
Answer: D. Custody is the role associated with safeguarding client securities and related settlement support. The requirement concerns holding and servicing securities for the investing client. A custodian is the relevant role. The appointment is not mainly for maintaining the issuer register, rating a debt issue or managing a new issue. Remember: Match the client need to the intermediary function, not just to a familiar registration label.
Hint, shown before you answer in practice mode: Common mistake: Confusing investor asset custody with administration performed on behalf of the issuer.
VII-008mediumapplication
Q4For handling its securities-holder records and related issue services, a company appoints an RTA to act on behalf of the:
Option A. Clearing corporation
Why it is wrong: The clearing corporation is not the issuer whose records the RTA administers.
Option B. Issuing company — Correct answer
Option C. Individual trading member
Why it is wrong: A trading member serves trading activity, not this issuer-agency relationship.
Option D. Investor's clearing bank
Why it is wrong: The investor clearing bank is not the principal appointing the RTA for issuer records.
Answer: B. The RTA acts for the issuing company in the role described. The records and services described relate to the company issuing the securities. The RTA represents that issuer. Being involved in a depository process does not make the RTA the agent of every other institution in that process. Remember: Connect RTA with issuer and DP with depository.
Hint, shown before you answer in practice mode: Common mistake: Choosing the institution that processes a transaction rather than the principal represented by the agent.
VII-009easyconceptual
Q5Which description distinguishes a professional clearing member from a trading-cum-clearing member?
Option A. It executes exchange trades but sends all clearing to another member
Why it is wrong: This describes separation of trading from clearing, but still gives the entity a trading role.
Option B. It clears only its own proprietary exchange trades
Why it is wrong: A professional clearing member is not defined by proprietary exchange trading.
Option C. It can provide clearing services without being a trading member — Correct answer
Option D. It becomes a trading member whenever it accepts a clearing client
Why it is wrong: Accepting clearing business does not convert professional clearing membership into trading membership.
Answer: C. This states the membership distinction being tested. A professional clearing member provides clearing services without itself being a trading member. A trading-cum-clearing member combines trading membership with a clearing role. Clearing another participant's obligations does not by itself amount to executing that participant's trades. Remember: Ask whether the member executes trades, clears them, or has permission for both roles.
Hint, shown before you answer in practice mode: Common mistake: Assuming that every clearing member must also be an exchange trading member.
VII-010mediumapplication
Q6An investor asks for an electronic security balance to be converted into physical certificates. This process is called:
Option A. Rematerialisation — Correct answer
Option B. Dematerialisation
Why it is wrong: Dematerialisation runs in the opposite direction.
Option C. Transmission
Why it is wrong: Transmission concerns a change arising through succession or operation of law, not the stated change of form.
Option D. Pledging
Why it is wrong: A pledge creates a security interest and is not conversion into a certificate.
Answer: A. Rematerialisation converts electronic balances into physical certificates. The starting point is an electronic holding and the requested output is a physical certificate. CDSL identifies that conversion as rematerialisation. Reversing the direction would describe dematerialisation. Remember: First identify whether the holding starts in physical or electronic form.
Hint, shown before you answer in practice mode: Common mistake: Selecting the familiar term dematerialisation without checking the direction.
VII-042easyconceptual
Q7A member has self-clearing status and no broader clearing membership. Which trades may it clear under that status?
Option A. Only trades executed for its proprietary account
Why it is wrong: It incorrectly excludes the member’s own clients.
Option B. Only trades of unrelated trading members
Why it is wrong: It substitutes other members’ business for its own business.
Option C. Its own trades and those of any trading member
Why it is wrong: It extends self-clearing status beyond its permitted scope.
Option D. Its proprietary trades and trades of its own clients — Correct answer
Answer: D. This answer includes both proprietary trades and the member’s own client trades. Self-clearing does not mean proprietary trades alone. It includes the member’s client business. It does not, by itself, authorise clearing for another trading member. Remember: Self-clearing includes own clients but not other trading members.
Hint, shown before you answer in practice mode: Common mistake: Treating self-clearing as either proprietary-only or a permission to clear everyone’s trades.
VII-053mediumapplication
Q8Two investors’ demat statements show the same ISIN for an equity holding. What does this matching identifier establish?
Option A. They use the same trading account
Why it is wrong: An ISIN is not a trading-account identifier.
Option B. They hold the same identified security — Correct answer
Option C. They have the same beneficial-owner number
Why it is wrong: A beneficial-owner account is not identified by the security’s ISIN.
Option D. They bought through the same broker
Why it is wrong: Security identity does not identify the broker used to acquire it.
Answer: B. The matching code identifies the same security in both statements. The identifier is assigned to the security. Different investors may hold that security. A matching ISIN therefore does not establish matching account numbers or a common broker. Remember: Match the ISIN to the instrument, not to the holder.
Hint, shown before you answer in practice mode: Common mistake: Treating a security code as a client-account code.
VII-054easyapplication
Q9An Indian company issues foreign-currency bonds that may be converted into its own ordinary shares under the issue terms. Which instrument is described?
Option A. Foreign Currency Exchangeable Bond
Why it is wrong: Exchangeable bonds refer to shares of another company, not the issuer’s own shares.
Option B. Global Depository Receipt
Why it is wrong: A depository receipt represents underlying securities rather than this convertible bond borrowing.
Option C. Foreign Currency Convertible Bond — Correct answer
Option D. Non-convertible foreign-currency bond
Why it is wrong: It omits the conversion feature expressly stated in the question.
Answer: C. This answer combines foreign-currency debt with conversion into the issuer’s own shares. The instrument starts as a bond denominated in foreign currency. Its stated conversion delivers the issuing company’s ordinary shares. That identifies an FCCB. The question tests the instrument’s character, not current borrowing permissions or limits. Remember: For this distinction, convertible points to the issuer’s own shares and exchangeable to another company’s shares.
Hint, shown before you answer in practice mode: Common mistake: Ignoring whose shares are delivered on conversion or exchange.
VII-079mediumconceptual
Q10Under NSE’s Authorised Person framework, which entity is responsible for the acts and omissions of an Authorised Person appointed by a trading member?
Option A. The client using the Authorised Person
Why it is wrong: The client does not become the appointing intermediary merely by using the service.
Option B. The stock exchange instead of the trading member
Why it is wrong: Exchange oversight does not replace the member responsibility in this framework.
Option C. The Authorised Person alone, excluding the trading member
Why it is wrong: The word alone wrongly removes the trading member’s stated responsibility.
Option D. The appointing trading member — Correct answer
Answer: D. NSE places responsibility for the appointed Authorised Person’s acts and omissions on that trading member. Identify the member that appointed the Authorised Person. NSE’s framework places responsibility for that Authorised Person’s acts and omissions on the trading member. This does not by itself decide an actual damages claim. Remember: The appointing trading member remains responsible under the Authorised Person framework.
Hint, shown before you answer in practice mode: Common mistake: Assuming that using a separate office or appointed agent removes member responsibility.
VII-080easyregulatory
Q11Which statement best describes a credit rating assigned to a debt instrument?
Option A. A recommendation to buy the instrument at its quoted market price
Why it is wrong: A credit rating is not a buy, hold or sell recommendation.
Option B. An opinion on whether the debt will be repaid fully and on time — Correct answer
Option C. An estimate of its daily trading volume on the exchange
Why it is wrong: The opinion is about debt repayment, not a liquidity-volume forecast.
Option D. An audit certification of every entry in the issuer’s accounts
Why it is wrong: A credit opinion is not an audit of all financial records.
Answer: B. The rating addresses credit risk associated with the debt obligation. The rated issue has interest and principal obligations. The rating expresses an opinion about full and timely repayment. It does not decide whether the current market price makes the investment attractive. Remember: Use a credit rating as a credit-risk opinion, not a substitute for an investment decision.
Hint, shown before you answer in practice mode: Common mistake: Treating a rating symbol as a buy recommendation or a guarantee of every investment outcome.
VII-095easyconceptual
Q12A fund manager places a securities trade for a mutual fund scheme using the scheme’s pooled assets. How is the investing scheme classified?
Option A. Institutional investor — Correct answer
Option B. Retail individual investor
Why it is wrong: The order is not an individual’s personal investment.
Option C. High-net-worth individual
Why it is wrong: A large fund investment does not turn the scheme into a high-net-worth individual.
Option D. Individual proprietary trader
Why it is wrong: The manager is acting for the scheme, not trading a personal account.
Answer: A. The investing entity is the mutual fund scheme. The investment belongs to the mutual fund scheme and uses pooled assets. The scheme is an institutional investor. The manager’s act of placing the order does not make it a personal trade. Remember: Look at whose assets are invested and who owns the position.
Hint, shown before you answer in practice mode: Common mistake: Classifying an institutional order by the individual who submits it.
VII-103easyapplication
Q13A living investor holds shares in demat form with no transfer of beneficial ownership. Who is entitled to the ownership benefits attached to that holding?
Option A. The depository participant
Why it is wrong: Providing demat services does not make the DP the beneficial owner.
Option B. The depository as registered owner
Why it is wrong: Registered ownership in the depository structure does not give the depository the investor’s economic benefits.
Option C. The investor as beneficial owner — Correct answer
Option D. The nominee merely because nomination is recorded
Why it is wrong: Recording a nominee does not itself transfer the living investor’s ownership benefits.
Answer: C. The benefits belong to the investor as beneficial owner. The depository’s registered-owner role is distinct from the investor’s beneficial-owner role. The investor retains the benefits of the holding. A DP relationship or a recorded nomination does not change the stated beneficial ownership. Remember: Distinguish registered ownership in the depository mechanism from beneficial ownership.
Hint, shown before you answer in practice mode: Common mistake: Treating an intermediary’s record-keeping role as ownership of client assets.
VII-104easyconceptual
Q14Under an issue’s stated terms, each Global Depository Receipt represents three ordinary shares. How many underlying shares do 450 GDRs represent?
Option A. 450 shares
Why it is wrong: It assumes one share per receipt and ignores the stated ratio.
Option B. 1,350 shares — Correct answer
Option C. 150 shares
Why it is wrong: It divides the receipt count by three instead of multiplying.
Option D. 453 shares
Why it is wrong: It adds three to the receipt count rather than applying three shares to every receipt.
Answer: B. This answer multiplies 450 receipts by three underlying shares each. Each receipt represents three shares under the hypothetical terms. Underlying share quantity = 450 receipts × 3 shares per receipt = 1,350 shares. The ratio is supplied for this issue. It is not presented as a standard ratio for all GDRs. Remember: Multiply the receipt count by the stated underlying-share ratio.
Hint, shown before you answer in practice mode: Common mistake: Assuming every depository receipt always represents one share.
VII-129easynumerical
Q15Which agency’s database is used to retrieve a securities-market client’s KYC registration details, rather than the client’s securities holdings or settlement positions?
Option A. Credit rating agency
Why it is wrong: A credit rating agency assesses creditworthiness rather than holding the KYC registration database described.
Option B. KYC Registration Agency — Correct answer
Option C. Clearing corporation
Why it is wrong: Clearing obligations are not the KYC registration information asked for.
Option D. Registrar and transfer agent
Why it is wrong: An RTA’s issuer or fund servicing records do not make it the KRA database described.
Answer: B. KRA stands for KYC Registration Agency and matches the requested record. The requested information is the client’s KYC registration record. SEBI’s SCORES instructions refer to retrieving registration details from a KRA database. The relevant entity is a KYC Registration Agency. This does not equate KRA records with demat balances or claim that one KRA is the only database used by the entire financial sector. Remember: Identify the information being retrieved before choosing its record-keeping agency.
Hint, shown before you answer in practice mode: Common mistake: Confusing KYC registration data with a demat holding statement.
VII-130easyconceptual
Market Participants in the Securities Market: common questions
How many practice questions are there on Market Participants in the Securities Market?
15 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 8 practice topics for NISM Series VII, which has 150 questions in total.
Are these real NISM Series VII questions on Market Participants in the Securities Market?
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 VII?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. 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.
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