Issue Management – Important Terms
15 questions. Each answer is explained.
Question 1 of 10Practice · Series IX — Merchant Banking
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Learn these topics
More units in NISM Series IX
- Introduction to Capital Market15
- Introduction to the Merchant Banking20
- Registration, Code of Conduct & General Obligations of Merchant Bankers in India20
- Issue Management – Process and Underwriting25
- Issue Management – General Obligations of Merchant Bankers and Due Diligence20
- Other Merchant Banking Activities-Mergers, Acquisitions & Takeovers20
- Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares15
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 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 IX Merchant Banking
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 15 questions on Issue Management – Important Terms, with answers
Q1What does an initial public offer, or IPO, describe for an unlisted company?
Option A. Its first public offer of equity shares — Correct answer
Option B. Every subsequent public offer of shares
Why it is wrong: Subsequent public offers are not the company’s initial public offer.
Option C. Every transfer between its existing shareholders
Why it is wrong: Private transfers between existing holders do not by themselves constitute an IPO.
Option D. Its first repayment of a bank loan
Why it is wrong: Loan repayment is not a public offering of equity.
Answer: A. An IPO is an unlisted company’s first public equity offer, which can include fresh shares or shares offered by existing holders. Remember: An IPO describes the first public equity offer rather than every later capital issue.
Hint, shown before you answer in practice mode: Common mistake: Assuming an IPO must consist only of newly created shares. Check the issuer’s listing status before the offering.
IX-056easyconceptual
Q2What is a further public offer, or FPO, by an already-listed company?
Option A. A first public offer by an unlisted issuer
Why it is wrong: This describes an IPO rather than an FPO by an already-listed issuer.
Option B. A private share transfer between two investors
Why it is wrong: A private secondary transfer is not a public offer by the listed company.
Option C. A subsequent public equity offer — Correct answer
Option D. A proportionate rights offer to existing holders
Why it is wrong: A rights issue is a different offer route from a further public offer.
Answer: C. An FPO is a subsequent public equity offer by a company whose shares are already listed. Remember: The issuer’s existing listed status distinguishes an FPO from an IPO.
Hint, shown before you answer in practice mode: Common mistake: Using IPO for every public offer regardless of the issuer’s listing history. The company is already listed before this public offering begins.
IX-057easyconceptual
Q3Which issue generally offers new shares to existing shareholders in proportion to their holdings?
Option A. A rights issue — Correct answer
Option B. An employee option exercise
Why it is wrong: An employee option exercise follows employee grants rather than all shareholders’ proportional holdings.
Option C. A qualified institutional placement
Why it is wrong: A qualified institutional placement targets eligible institutions rather than all existing holders proportionately.
Option D. A public offer for sale
Why it is wrong: An offer for sale transfers existing shares rather than offering proportional new-share rights.
Answer: A. A rights issue offers existing shareholders new shares in proportion to their holdings, subject to its terms. Remember: Rights issues give existing shareholders a proportionate subscription opportunity.
Hint, shown before you answer in practice mode: Common mistake: Confusing an offer to existing holders with a targeted institutional allotment. Think about preserving an existing holder’s opportunity to participate.
IX-058easyconceptual
Q4What happens to application money under Applications Supported by Blocked Amount, or ASBA, before the relevant debit?
Option A. It is transferred to the registrar as custody money
Why it is wrong: The registrar does not replace the applicant’s bank as the location of the blocked balance.
Option B. It is transferred in full to the issuer immediately
Why it is wrong: ASBA blocking is different from an immediate full transfer of application money.
Option C. It remains blocked in the applicant’s bank account — Correct answer
Option D. It stays freely withdrawable despite the block
Why it is wrong: The blocked amount is restricted until the applicable debit or release.
Answer: C. Under ASBA, the application amount remains blocked in the applicant’s bank account until the applicable debit or release. Remember: ASBA uses a block on funds rather than an immediate full transfer to the issuer.
Hint, shown before you answer in practice mode: Common mistake: Treating blocked money as already allotted share capital. Think about who holds the account used for the application.
IX-059easyconceptual
Q5What is the principal purpose of a green shoe option in an equity offering?
Option A. Guaranteeing a fixed minimum return to applicants
Why it is wrong: Stabilisation is not a guaranteed investment-return commitment.
Option B. Supporting permitted post-listing price stabilisation — Correct answer
Option C. Increasing the issuer’s ordinary dividend entitlement
Why it is wrong: A green shoe option concerns offer stabilisation rather than dividend rights.
Option D. Setting the company’s permanent market price
Why it is wrong: The mechanism does not permanently fix prices in the secondary market.
Answer: B. A green shoe option supports permitted post-listing price stabilisation through the issue’s specified overallotment mechanism. Remember: A green shoe option is a stabilisation mechanism rather than a return guarantee.
Hint, shown before you answer in practice mode: Common mistake: Assuming stabilisation means the share price cannot fall. Think about a permitted mechanism linked to the early trading period.
IX-060easyconceptual
Q6What does the draft red herring prospectus, or DRHP, principally provide before a book-built public issue?
Option A. Draft issue disclosures for review — Correct answer
Option B. An underwriting contract without issuer disclosures
Why it is wrong: The DRHP is not merely the bilateral underwriting agreement.
Option C. An exchange contract note for the first trade
Why it is wrong: A contract note records an executed trade rather than the draft public-offer disclosures.
Option D. Final issue terms and completed allotment results
Why it is wrong: A draft offer document precedes finalisation and allotment.
Answer: A. The DRHP provides draft issue disclosures for review before the offering proceeds to its later stages. Remember: Draft offer documentation is not an allotment or price guarantee.
Hint, shown before you answer in practice mode: Common mistake: Treating a filed draft document as confirmation of a completed issue. Identify the stage indicated by the word draft.
IX-061mediumconceptual
Q7What may remain incomplete in a red herring prospectus compared with the final prospectus?
Option A. All information about material business risks
Why it is wrong: Material risk information cannot be omitted merely because pricing is not final.
Option B. All information about proposed use of proceeds
Why it is wrong: The intended use of funds is not generally withheld simply because the document is a red herring prospectus.
Option C. All information about the issuer’s business
Why it is wrong: The document’s status does not permit complete omission of business disclosures.
Option D. Complete details of price or securities quantity — Correct answer
Answer: D. A red herring prospectus may lack complete particulars of the securities’ price or quantity before these are finalised. Remember: A red herring prospectus is incomplete in specified offer particulars, not in every disclosure.
Hint, shown before you answer in practice mode: Common mistake: Assuming the term permits broad omission of material business information. Think about information that book building helps finalise.
IX-062mediumconceptual
Q8Which feature most directly distinguishes book building from a fixed-price public issue?
Option A. Investor bids help discover the issue price — Correct answer
Option B. Every applicant receives the same number of shares
Why it is wrong: Book building does not guarantee equal allotment quantities.
Option C. Investors trade only after the issue closes
Why it is wrong: Post-issue trading does not define the distinction between the pricing routes.
Option D. The issuer has no disclosure obligations
Why it is wrong: Both routes have applicable disclosure obligations.
Answer: A. Book building uses investor bids to help discover the issue price rather than announcing a single fixed issue price at the outset. Remember: Book building and fixed-price issues differ principally in price discovery.
Hint, shown before you answer in practice mode: Common mistake: Confusing the method of pricing with the later allotment outcome. Focus on how the offer price is determined.
IX-063mediumconceptual
Q9An offer includes ₹120 crore fresh shares and ₹80 crore shares sold by existing holders. What gross amount reaches the issuer?
Option A. ₹120 crore — Correct answer
Option B. ₹40 crore
Why it is wrong: There is no reason to subtract the offer-for-sale amount from the fresh-issue amount.
Option C. ₹80 crore
Why it is wrong: This is the offer-for-sale amount rather than the fresh-issue amount.
Option D. ₹200 crore
Why it is wrong: This incorrectly includes the selling shareholders’ proceeds as issuer capital.
Answer: A. The issuer receives ₹120 crore because only the fresh-share component raises money for it. Issuer gross proceeds = ₹120 crore. The ₹80 crore offer-for-sale proceeds belong to the selling shareholders, ignoring costs. Remember: The issuer receives fresh-issue proceeds, not selling shareholders’ offer-for-sale proceeds.
Hint, shown before you answer in practice mode: Common mistake: Treating the entire advertised offer size as money raised by the company. Separate proceeds from new shares and proceeds from existing shares.
IX-064mediumnumerical
Q10An offer contains 30 lakh shares, including 2 lakh reserved for employees and 3 lakh for shareholders. What is the remaining net public offer?
Option A. 28 lakh shares
Why it is wrong: This deducts only the employee reservation.
Option B. 25 lakh shares — Correct answer
Option C. 30 lakh shares
Why it is wrong: This ignores both stated reservations.
Option D. 27 lakh shares
Why it is wrong: This deducts only the shareholder reservation.
Answer: B. The remaining net public offer is 25 lakh shares after deducting both reservations. Net offer = 30 lakh − 2 lakh − 3 lakh = 25 lakh shares. Remember: The net offer excludes the reservations specified in the issue structure.
Hint, shown before you answer in practice mode: Common mistake: Deducting only one reservation when more than one is stated. Remove every stated reservation once from the total offered shares.
IX-065mediumnumerical
Q11A company issues a ₹10 face-value share at ₹85. What is the issue premium per share?
Option A. ₹10
Why it is wrong: This is the face value rather than the premium.
Option B. ₹75 — Correct answer
Option C. ₹95
Why it is wrong: This adds face value to issue price instead of separating the two components.
Option D. ₹85
Why it is wrong: This is the full issue price rather than the premium component.
Answer: B. The issue premium is ₹75 because the issue price exceeds face value by that amount. Premium = ₹85 − ₹10 = ₹75 per share. Remember: Issue price and face value are different concepts.
Hint, shown before you answer in practice mode: Common mistake: Calling the full issue price the securities premium. The premium is the part of the issue price above face value.
IX-066mediumnumerical
Q12What does a qualified institutional buyer, or QIB, classification depend on?
Option A. Belonging to an eligible institutional category — Correct answer
Option B. Being any investor who bids on the first day
Why it is wrong: The timing of a bid does not determine institutional classification.
Option C. Being any individual making a large bid
Why it is wrong: A large individual bid does not by itself create institutional eligibility.
Option D. Being any employee of the issuing company
Why it is wrong: Employment by the issuer does not establish QIB eligibility.
Answer: A. QIB classification depends on the investor falling within an eligible institutional category, not merely bidding a large amount. Remember: Investor categories are not interchangeable just because application amounts are large.
Hint, shown before you answer in practice mode: Common mistake: Treating a wealthy individual as a QIB solely because of wealth. Distinguish investor eligibility from the size or timing of an application.
IX-067mediumconceptual
Q13What does an eligible investor indicate by submitting a cut-off bid in a book-built issue?
Option A. A guarantee of receiving the full quantity
Why it is wrong: Acceptance of the final price does not guarantee full allotment.
Option B. A demand for allotment only at face value
Why it is wrong: A cut-off bid does not fix the purchase price at face value.
Option C. Acceptance of the price finally determined — Correct answer
Option D. A refusal to accept any discovered price
Why it is wrong: A cut-off bid indicates acceptance rather than rejection of the final price.
Answer: C. A cut-off bid indicates willingness to subscribe at the issue price finally determined through the process. Remember: A cut-off bid accepts the discovered price but does not assure allotment.
Hint, shown before you answer in practice mode: Common mistake: Equating a cut-off bid with a guaranteed full allocation. Separate agreement on the eventual price from certainty of allocation.
IX-068mediumconceptual
Q14A hypothetical price band is ₹240 to ₹264. By what percentage does the cap exceed the floor?
Option A. 9.09%
Why it is wrong: This divides the difference by the cap rather than the floor.
Option B. 10.00% — Correct answer
Option C. 24.00%
Why it is wrong: This treats the ₹24 price difference as a percentage without a denominator.
Option D. 110.00%
Why it is wrong: This gives the cap as a percentage of the floor rather than the excess percentage.
Answer: B. The cap exceeds the floor by 10% because the ₹24 difference is measured against ₹240. Difference = ₹264 − ₹240 = ₹24. Percentage excess = ₹24 ÷ ₹240 × 100 = 10%. This is a hypothetical calculation, not a statement of a regulatory limit. Remember: A percentage price-band spread needs the correct reference price.
Hint, shown before you answer in practice mode: Common mistake: Dividing the spread by the upper price rather than the stated lower reference. Identify the lower reference amount before expressing the difference as a percentage.
IX-069hardnumerical
Q15A holder owns 60 lakh of 100 lakh shares. Others subscribe to 20 lakh new shares and the holder sells 10 lakh existing shares. What ownership remains?
Option A. 45.45%
Why it is wrong: This incorrectly subtracts the secondary sale from the total outstanding shares.
Option B. 41.67% — Correct answer
Option C. 58.33%
Why it is wrong: This adds the holder’s sale instead of subtracting it from the holding.
Option D. 50.00%
Why it is wrong: This updates the holder’s shares but fails to add the fresh shares to the total.
Answer: B. The holder retains 41.67% because its holding falls to 50 lakh while total shares rise to 120 lakh. Remaining holding = 60 lakh − 10 lakh = 50 lakh. Enlarged capital = 100 lakh + 20 lakh = 120 lakh. Ownership = 50 ÷ 120 × 100 = 41.67%. Remember: Fresh issuance and secondary sales affect ownership calculations in different ways.
Hint, shown before you answer in practice mode: Common mistake: Reducing total outstanding shares when an existing shareholder sells to another investor. A fresh issue changes the denominator, while a holder’s sale changes that holder’s numerator.
IX-070hardnumerical
Issue Management – Important Terms: common questions
How many practice questions are there on Issue Management – Important Terms?
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 IX, which has 150 questions in total.
Are these real NISM Series IX questions on Issue Management – Important Terms?
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 IX?
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.
Issue Management – Process and Underwriting
25 questions on Issue Management – Process and Underwriting. Its quiz opens on that unit.
Open Issue Management – Process and UnderwritingPaper Trading Try it on the practice trading desk