Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares
15 questions. Each answer is explained.
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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 – Important Terms15
- Issue Management – Process and Underwriting25
- Issue Management – General Obligations of Merchant Bankers and Due Diligence20
- Other Merchant Banking Activities-Mergers, Acquisitions & Takeovers20
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares, with answers
Q1In the public-sector context, what does disinvestment generally mean for the government’s ownership?
Option A. Reducing its ownership through a stake sale — Correct answer
Option B. Increasing ownership through a fresh subscription
Why it is wrong: An increase in government ownership is not a divestment of its stake.
Option C. Declaring interest on a government loan
Why it is wrong: An interest declaration is unrelated to disposing of an equity stake.
Option D. Changing only the shares’ face value
Why it is wrong: A denomination change does not by itself reduce the government’s ownership.
Answer: A. Disinvestment generally reduces the government’s ownership by selling part or all of its stake. Remember: A disinvestment is a disposal of an existing investment interest.
Hint, shown before you answer in practice mode: Common mistake: Assuming disinvestment necessarily means the enterprise stops operating. Focus on whether the existing owner is adding to or selling its investment.
IX-136easyconceptual
Q2Who purchases a company’s shares in a buyback by that company?
Option A. The depository as the beneficial investor
Why it is wrong: The depository’s recordkeeping role does not make it the economic buyer.
Option B. The issuing company itself — Correct answer
Option C. An unrelated bidder in every takeover
Why it is wrong: A takeover bidder is distinct from the company conducting its own buyback.
Option D. A new public subscriber in a fresh issue
Why it is wrong: A fresh subscriber buys newly offered securities rather than the company repurchasing its own shares.
Answer: B. In a buyback, the issuing company purchases its own shares under the applicable framework. Remember: The identity of the purchaser distinguishes a company buyback from an outside acquisition.
Hint, shown before you answer in practice mode: Common mistake: Calling every purchase of listed shares a buyback. Identify which party pays the purchase consideration.
IX-137easyconceptual
Q3What does delisting of equity shares primarily change?
Option A. Every share’s face value automatically
Why it is wrong: A change of listing status does not itself alter share denomination.
Option B. Their admission to trading on the relevant exchange — Correct answer
Option C. Every shareholder’s ownership percentage automatically
Why it is wrong: Delisting alone does not require every holding percentage to change.
Option D. The company’s authorised share capital automatically
Why it is wrong: Removal from an exchange does not automatically change authorised capital.
Answer: B. Delisting changes the shares’ admission to trading on the relevant stock exchange. Remember: Delisting concerns exchange listing status rather than automatically dissolving the company.
Hint, shown before you answer in practice mode: Common mistake: Assuming delisted shares and a dissolved company are the same thing. Focus on the relationship between the shares and the exchange.
IX-138easyconceptual
Q4What most directly distinguishes a secured debt security from an unsecured one?
Option A. A credit rating above every unsecured instrument
Why it is wrong: Security alone does not establish a rating higher than every unsecured instrument.
Option B. A fixed interest rate throughout the instrument’s life
Why it is wrong: Both secured and unsecured debt can have interest structures that do not determine their security status.
Option C. A specified security interest supports the debt — Correct answer
Option D. A promise that interest will be paid before every other claim
Why it is wrong: The relevant claim priorities depend on the legal terms and framework rather than this blanket promise.
Answer: C. A secured debt security has a specified security interest supporting the debt rather than relying solely on an unsecured claim. Remember: Security supports a debt claim but does not eliminate every recovery risk.
Hint, shown before you answer in practice mode: Common mistake: Assuming secured means repayment cannot fail or be delayed. Think about the assets or rights available to support the debt claim.
IX-139easyconceptual
Q5In an employee stock option plan, what does exercise generally mean?
Option A. Selling shares already bought in the market
Why it is wrong: Selling acquired shares is a separate step from exercising the option.
Option B. Satisfying the conditions for the option to vest
Why it is wrong: Vesting establishes eligibility to exercise but is not the exercise itself.
Option C. The initial promise of an option grant
Why it is wrong: Grant is the initial award rather than the employee’s later exercise.
Option D. Using a vested option to acquire shares on its terms — Correct answer
Answer: D. Exercise means using a vested option to acquire shares according to the option’s terms. Remember: Grant, vesting and exercise are separate stages of an employee option arrangement.
Hint, shown before you answer in practice mode: Common mistake: Assuming shares are automatically purchased on the date the option is granted. Separate grant, vesting, exercise and later sale.
IX-140easyconceptual
Q6What most directly distinguishes strategic disinvestment involving a transfer of control from a minority government stake sale?
Option A. The appointment of transaction advisers
Why it is wrong: Both types of transaction can involve professional advisers.
Option B. The receipt of share-sale proceeds
Why it is wrong: Both forms of stake sale can generate proceeds.
Option C. A transfer of management control — Correct answer
Option D. The sale of existing government-held shares
Why it is wrong: Both transactions can involve existing government-held shares.
Answer: C. The transfer of management control distinguishes the stated strategic disinvestment from a minority stake sale without control transfer. Remember: Selling some equity and transferring control are separate transaction features.
Hint, shown before you answer in practice mode: Common mistake: Assuming every minority stake sale transfers management control. Focus on who can direct the business after the transaction.
IX-141mediumapplication
Q7A company buys back 8 lakh shares at ₹250 each. What gross purchase consideration does it pay?
Option A. ₹2 crore
Why it is wrong: This understates the value of 8 lakh shares at ₹250 by ten times.
Option B. ₹20 crore — Correct answer
Option C. ₹200 crore
Why it is wrong: This overstates the quantity-price product by ten times.
Option D. ₹25 crore
Why it is wrong: This uses 10 lakh shares rather than the stated 8 lakh.
Answer: B. The gross purchase consideration is ₹20 crore for the accepted shares. Consideration = 8 lakh × ₹250 = ₹20 crore, excluding costs and taxes. Remember: Buyback consideration is based on accepted shares rather than every share originally tendered.
Hint, shown before you answer in practice mode: Common mistake: Mixing up lakh and crore when converting the purchase amount. Use the accepted share quantity and the price paid per share.
IX-142mediumnumerical
Q8A company’s shares are delisted from an exchange. Which conclusion does NOT follow solely from that event?
Option A. The company has legally ceased to exist — Correct answer
Option B. The exchange listing status has changed
Why it is wrong: Changing that status is the direct effect of delisting.
Option C. The shares are no longer listed on that exchange
Why it is wrong: This follows from delisting from the stated exchange.
Option D. Normal exchange trading there is unavailable
Why it is wrong: Delisting removes the ordinary listing-based trading route on that exchange.
Answer: A. Delisting does not by itself mean the company has legally ceased to exist because listing status and corporate existence are separate matters. Remember: A company may continue to exist after its shares are delisted.
Hint, shown before you answer in practice mode: Common mistake: Treating delisting as an automatic winding-up or dissolution. Distinguish removal from a trading venue from termination of a legal entity.
IX-143mediumapplication
Q9Which intermediary is appointed to protect debt-security holders’ interests under the terms of a debenture trust arrangement?
Option A. The lead merchant banker
Why it is wrong: A lead-management appointment does not by itself confer the distinct debenture-trustee role.
Option B. The credit rating agency
Why it is wrong: A rating opinion does not make the agency the representative under the debenture trust arrangement.
Option C. The registrar to the issue
Why it is wrong: Recordkeeping does not replace the trustee’s holder-protection responsibilities.
Option D. The debenture trustee — Correct answer
Answer: D. The debenture trustee acts to protect debt-security holders’ interests under the trust arrangement and applicable framework. Remember: Issue management and debenture trusteeship are distinct roles.
Hint, shown before you answer in practice mode: Common mistake: Assuming the issuer’s lead manager automatically performs every trustee obligation. Identify the intermediary whose role is tied to the debt holders’ collective interests.
IX-144mediumconceptual
Q10What is the main trading purpose of market making in a small and medium enterprise, or SME, share?
Option A. Replacing the issuer’s continuing disclosure responsibilities
Why it is wrong: Providing quotes does not remove the issuer’s applicable disclosure responsibilities.
Option B. Supporting liquidity through buy and sell quotes — Correct answer
Option C. Certifying the issuer’s financial statements as accurate
Why it is wrong: Financial-statement assurance is not the trading-liquidity role of market making.
Option D. Guaranteeing a fixed resale price for every investor
Why it is wrong: Market making does not mean every investor receives a guaranteed fixed exit price.
Answer: B. Market making supports liquidity by providing buying and selling quotes rather than guaranteeing investor returns. Remember: Market making facilitates trading but does not eliminate price risk.
Hint, shown before you answer in practice mode: Common mistake: Treating a market maker as a guarantor of the issue price or future returns. Distinguish trading support from guarantees about the issuer.
IX-145mediumconceptual
Q11An applicable framework requires an exit offer to dissenting shareholders after a change in issue objects. What is the offer’s central purpose?
Option A. Give eligible dissenting holders an exit on specified terms — Correct answer
Option B. Make the dissenting holders subscribe to replacement shares
Why it is wrong: An exit opportunity is not a compulsory new subscription.
Option C. Repay each dissenting holder’s original purchase cost in every case
Why it is wrong: An exit opportunity does not by itself guarantee recovery of each investor’s individual purchase cost.
Option D. Reverse the approved change in issue objects automatically
Why it is wrong: The exit mechanism does not automatically cancel the underlying approved change.
Answer: A. The exit offer gives eligible dissenting holders a route to sell under the specified terms rather than forcing continued participation. Remember: An exit opportunity protects a choice to leave, not a guaranteed investment outcome.
Hint, shown before you answer in practice mode: Common mistake: Assuming the existence of an exit offer guarantees recovery of the original purchase price. Focus on the option given to a shareholder who does not support the change.
IX-146mediumapplication
Q12An alternative investment fund’s placement memorandum describes unleveraged investing, but its operating plan relies on borrowing. What should the merchant banker reviewing it address?
Option A. Only whether the disclosed management fee is competitive
Why it is wrong: Fee competitiveness does not reconcile the undisclosed borrowing risk.
Option B. Only whether the fund’s proposed name describes the sector
Why it is wrong: A descriptive name does not resolve the material strategy-and-borrowing mismatch.
Option C. Only whether the investor commitment targets are achievable
Why it is wrong: Fundraising targets do not establish whether the stated investment strategy matches its leverage.
Option D. The mismatch between disclosed risk and planned leverage — Correct answer
Answer: D. The review should address the strategy-and-leverage inconsistency because it can materially change the risks described to investors. Remember: A fund’s placement disclosures should match its actual proposed structure and strategy.
Hint, shown before you answer in practice mode: Common mistake: Treating borrowing plans as irrelevant when the stated strategy describes no leverage. Compare the risk investors are told about with the risk the operating plan actually creates.
IX-147mediumapplication
Q13A company earns ₹18 crore on 90 lakh shares. After a buyback, shares fall to 75 lakh and annual profit falls by ₹1.5 crore. What is the new earnings per share?
Option A. ₹18.33
Why it is wrong: This reduces profit but retains the old 90 lakh share count.
Option B. ₹24
Why it is wrong: This uses the reduced share count but ignores the fall in annual profit.
Option C. ₹22 — Correct answer
Option D. ₹20
Why it is wrong: This repeats the original earnings per share without applying the new inputs.
Answer: C. New earnings per share are ₹22 because profit falls to ₹16.5 crore and the denominator falls to 75 lakh shares. Profit = ₹18 crore − ₹1.5 crore = ₹16.5 crore. Earnings per share = ₹16.5 crore ÷ 75 lakh = ₹22, assuming the changes apply for the full comparison period. Remember: Buyback analysis should not assume earnings remain unchanged when the question states an income effect.
Hint, shown before you answer in practice mode: Common mistake: Reducing only the share denominator while ignoring the stated fall in profit. A buyback can change both the share count and the income remaining after using cash.
IX-148hardnumerical
Q14A shareholder owns 18 lakh of 100 lakh shares and does not participate in a buyback. After 10 lakh shares are bought and cancelled, what ownership remains?
Option A. 16.36%
Why it is wrong: This adds bought-back shares to the total instead of cancelling them.
Option B. 20% — Correct answer
Option C. 28%
Why it is wrong: This adds the buyback percentage directly to the shareholder’s percentage.
Option D. 18%
Why it is wrong: This ignores the reduction in total outstanding shares.
Answer: B. The holder’s ownership rises to 20% because total shares fall to 90 lakh. Remaining total = 100 lakh − 10 lakh = 90 lakh. Ownership = 18 lakh ÷ 90 lakh × 100 = 20%, assuming the cancellation is complete and there are no other changes. Remember: A non-participating holder’s percentage can rise when bought-back shares are cancelled.
Hint, shown before you answer in practice mode: Common mistake: Assuming unchanged share quantity always means unchanged ownership percentage. The holder’s share count stays the same while the company’s outstanding shares decline.
IX-149hardnumerical
Q15A holder sells 700 shares at ₹180 under a completed delisting exit. Their cost was ₹120 each and the assumed fee is 0.5% of proceeds. What pre-tax gain results?
Option A. ₹1,25,370
Why it is wrong: This deducts the fee but fails to deduct the acquisition cost of the shares sold.
Option B. ₹42,000
Why it is wrong: This calculates the price gain but omits the stated transaction fee.
Option C. ₹41,580
Why it is wrong: This incorrectly charges the fee on acquisition cost instead of sale proceeds.
Option D. ₹41,370 — Correct answer
Answer: D. The pre-tax gain is ₹41,370 after the stated fee. Gross proceeds = 700 × ₹180 = ₹1,26,000. Cost = 700 × ₹120 = ₹84,000. Hypothetical fee = 0.5% × ₹1,26,000 = ₹630. Gain = ₹1,26,000 − ₹84,000 − ₹630 = ₹41,370. The fee is a case assumption, not a statutory rate. Remember: Exit proceeds are not the same as realised gain after acquisition cost and transaction charges.
Hint, shown before you answer in practice mode: Common mistake: Treating the full exit receipt as profit or applying the fee to the wrong base. Deduct both the cost of the shares sold and the fee calculated on the specified base.
IX-150hardnumerical
Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares: common questions
How many practice questions are there on Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares?
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 Other Merchant Banking Activities – Disinvestment, Buyback of Equity Shares?
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.
Try a paper on all of NISM Series IX
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