Unit study guide · NISM Series X-A

Securities Market Segments

21 questions in this unit

What this unit covers

In exchange-traded securities transactions, what is the principal purpose of collecting margin?
Transaction 1: An investor subscribes for newly issued shares and the company receives the subscription money. Transaction 2: An investor buys existing listed shares from another investor on a stock exchange. How should the transactions be classified?
An already listed company makes a fresh issue of equity shares to the public. The offer is not restricted to its existing shareholders. Which description applies?
A public offer contains 12,00,000 newly issued shares and an offer for sale of 8,00,000 existing shares by selling shareholders. Every share is sold at ₹150. Ignoring issue expenses, how much gross cash does the company receive from this offer?
An issue’s final price is discovered using investor demand at different price levels within the stated price band. Which pricing process does this describe?
An investor applies for an IPO through ASBA, and ₹1,50,000 is blocked in the investor’s bank account. The final allotment requires payment of ₹45,000. With no other debit or block involved, what should happen to the application amount?
Company P completes a fully paid, cash-subscribed rights issue. Company Q completes a bonus issue by capitalising reserves. Which statement correctly identifies the fresh subscription cash received by the issuers?
A company has 80,00,000 outstanding equity shares. Each share has a face value of ₹10 and a current market price of ₹125. What is the equity market capitalization?
During a period, 20,000 shares trade at ₹240 and another 30,000 shares trade at ₹245. These are the only trades. What is the total traded value?
A two-stock index starts a period with 60% in Stock A and 40% in Stock B. Stock A rises 5% and Stock B falls 4%. What is the index return for the period?
A company issues two bonus shares for every five existing shares held. An eligible investor owns 350 shares before the bonus. How many shares will the investor hold after the bonus allotment, assuming no other transaction?
A company subdivides each fully paid share with a face value of ₹10 into fully paid shares with a face value of ₹2. An investor holds 120 shares before the split. How many shares will the investor hold afterwards?
A company declares a cash dividend explicitly equal to 60% of its ₹5 face value per share. An eligible investor holds 800 fully paid shares, currently trading at ₹150 each. What is the gross dividend payable to this investor?
A company initially has 10,00,000 ordinary shares outstanding. It buys back and cancels 2,00,000 shares. An investor who does not participate continues to hold 10,000 shares. With no other change in share count, what percentage of the outstanding shares does this investor own afterwards?
Under a completed merger’s stated exchange terms, an investor receives three shares of the acquiring company for every five shares held in the target company. The investor owns 425 eligible target-company shares. How many acquiring-company shares are received?
An investor sees that SEBI has issued observations on a public-offer document. Which conclusion can the investor properly draw about those observations?
CASE: A rights issue offers one new share for every four held, at ₹130 a share. An investor holds 800 shares. How much must the investor pay to take up the full entitlement?
CASE: A company with 1,00,00,000 shares makes a rights issue of one new share for every four held, at ₹130 a share. The whole issue is taken up. How much cash does the company raise?
CASE: A company has 1,00,00,000 shares trading at ₹180. It issues one rights share for every four held, at ₹130, and the issue is fully taken up. Assume the value after the issue equals the old market value plus the cash raised. What is the theoretical ex-rights price?
CASE: A company has 1,00,00,000 shares and issues one rights share for every four held. The issue is fully taken up. An investor holds 800 shares and takes up the full entitlement. What is the investor's ownership after the issue?
CASE: Shares trade at ₹180 before a rights issue, and the theoretical ex-rights price is ₹170. An investor holds 800 shares and lets the rights lapse with no payment for them. How does the value of the holding change?

Key ideas

From the practice bank · 1

In exchange-traded securities transactions, what is the principal purpose of collecting margin?

Collateral against failure to meet payment or delivery obligations is the risk-control purpose of margin. Trades can create obligations whose value and risk change before they are fully discharged. Collateral helps protect against non-performance of payment or delivery obligations. It does not prevent prices from moving or remove the investor’s possibility of loss. The question tests the purpose of margin. It does not specify a margin rate, calculation method or collection deadline. Remember: Margin manages counterparty exposure. It is not a promise that the trade is safe or profitable.

Hint Common mistake: Treating the amount deposited as margin as either a maximum possible trading loss or the full price of the investment.

X-A-030

From the practice bank · 2

Transaction 1: An investor subscribes for newly issued shares and the company receives the subscription money. Transaction 2: An investor buys existing listed shares from another investor on a stock exchange. How should the transactions be classified?

This correctly assigns primary-market issuance to Transaction 1 and secondary-market resale to Transaction 2. In Transaction 1, the company issues new shares and receives subscription cash. That is primary-market issuance. In Transaction 2, an existing shareholder sells listed shares to another investor. That is secondary-market trading, with cash going to the seller. Classify the specific transactions given. Do not extend the distinction to a claim that every public offer consists exclusively of newly issued shares. Remember: Ask whether new securities are being issued and who receives the payment.

Hint Common mistake: Assuming that the issuer receives cash whenever its shares change hands on an exchange.

X-A-031

From the practice bank · 3

An already listed company makes a fresh issue of equity shares to the public. The offer is not restricted to its existing shareholders. Which description applies?

A further public offer matches the issuer’s listed status and the public-offer route. The company is already listed, so its described public offer is not its initial public offer. The fresh shares are offered to the public rather than through an entitlement restricted to existing shareholders, so the described route is not a rights issue. The question describes a fresh public issue, not free additional shares allotted by capitalising reserves. Remember: Identify both the issuer’s status and the audience or entitlement through which shares are offered.

Hint Common mistake: Calling every new issue an IPO even when the issuing company is already listed.

X-A-032

From the practice bank · 4

A public offer contains 12,00,000 newly issued shares and an offer for sale of 8,00,000 existing shares by selling shareholders. Every share is sold at ₹150. Ignoring issue expenses, how much gross cash does the company receive from this offer?

₹18 crore is the fresh-issue component received by the company. Fresh-issue cash = 12,00,000 new shares × ₹150 = ₹18,00,00,000, or ₹18 crore. Selling-shareholder cash = 8,00,000 existing shares × ₹150 = ₹12,00,00,000, or ₹12 crore. The total offer collects ₹30 crore, but only ₹18 crore is the company’s gross receipt. Expenses are excluded by the question. Remember: Follow the cash recipient for each component instead of treating total offer size as issuer funding.

Hint Common mistake: Including offer-for-sale receipts in the issuing company’s capital raised.

X-A-033

From the practice bank · 5

An issue’s final price is discovered using investor demand at different price levels within the stated price band. Which pricing process does this describe?

Book building is the demand-based price-discovery process described. The issue in the question has a and receives investor bids at different price levels. The final issue price is discovered from that demand: this is book building. Neither the share’s face value nor the simple midpoint of the band by itself describes the stated demand-based process. Remember: Book building concerns demand-based discovery. A price band is not itself the final offer price.

Hint Common mistake: Assuming that the price must equal the band midpoint or face value regardless of bids.

X-A-034

From the practice bank · 6

An investor applies for an IPO through ASBA, and ₹1,50,000 is blocked in the investor’s bank account. The final allotment requires payment of ₹45,000. With no other debit or block involved, what should happen to the application amount?

Debit ₹45,000 for the allotted securities and unblock the unused ₹1,05,000. The application blocks ₹1,50,000. The final allotment needs only ₹45,000. The allotment-related debit is ₹45,000. The unused portion is ₹1,50,000 − ₹45,000 = ₹1,05,000. That unused ₹1,05,000 is unblocked. The question supplies no other debit or block and makes no claim about a particular processing deadline. Remember: Keep three amounts separate: application block, allotment debit and unused funds released.

Hint Common mistake: Calling the entire blocked application amount a completed payment before the allotment is known.

X-A-035

From the practice bank · 7

Company P completes a fully paid, cash-subscribed rights issue. Company Q completes a bonus issue by capitalising reserves. Which statement correctly identifies the fresh subscription cash received by the issuers?

This correctly distinguishes cash raised under the rights issue from the reserve capitalisation underlying the bonus issue. Company P’s rights shares are paid for by subscribers, producing fresh cash for P. Company Q’s bonus shares arise through a transfer within equity, from reserves to share capital, rather than a cash contribution from the shareholders. An increase in the number of shares is not sufficient to conclude that new outside cash entered the company. Remember: An increase in share capital need not mean an equal increase in cash received from investors.

Hint Common mistake: Treating every allotment of additional shares as a fresh cash fund-raising.

X-A-036

From the practice bank · 8

A company has 80,00,000 outstanding equity shares. Each share has a face value of ₹10 and a current market price of ₹125. What is the equity market capitalization?

₹100 crore correctly uses the market price and the share count. Outstanding shares = 80,00,000. Market price per share = ₹125. Market capitalization = 80,00,000 × ₹125 = ₹1,00,00,00,000. One crore is ₹1,00,00,000. Dividing ₹1,00,00,00,000 by that amount gives ₹100 crore. Remember: For market capitalization use outstanding shares × market price, with careful unit conversion.

Hint Common mistake: Using face value or misplacing a zero when converting a rupee amount into crore.

X-A-037

From the practice bank · 9

During a period, 20,000 shares trade at ₹240 and another 30,000 shares trade at ₹245. These are the only trades. What is the total traded value?

₹1,21,50,000 sums the two correctly priced execution groups. First group: 20,000 × ₹240 = ₹48,00,000. Second group: 30,000 × ₹245 = ₹73,50,000. Total = ₹48,00,000 + ₹73,50,000 = ₹1,21,50,000. Each matched trade is counted once under the question’s convention. Remember: Turnover is a sum of quantity-price products, not necessarily total quantity multiplied by the first or final price.

Hint Common mistake: Double counting a trade once for the buyer and again for the seller when single counting is explicitly required.

X-A-038

From the practice bank · 10

A two-stock index starts a period with 60% in Stock A and 40% in Stock B. Stock A rises 5% and Stock B falls 4%. What is the index return for the period?

+1.4% correctly includes both weighted contributions. Stock A contributes 60% × 5% = 3.0 percentage points. Stock B contributes 40% × (−4%) = −1.6 percentage points. Adding the contributions gives +1.4%. The calculation follows the expressly defined hypothetical index method. Remember: Keep weights, signs and percentage units consistent when aggregating returns.

Hint Common mistake: Taking an unweighted average merely because two securities appear in the question.

X-A-039

From the practice bank · 11

A company issues two bonus shares for every five existing shares held. An eligible investor owns 350 shares before the bonus. How many shares will the investor hold after the bonus allotment, assuming no other transaction?

490 correctly adds the bonus entitlement to the original shares. Each block of five old shares earns two new shares. With 350 old shares there are 350 ÷ 5 = 70 blocks. Bonus shares = 70 × 2 = 140. The investor keeps the original 350 shares, so the final holding is 350 + 140 = 490 shares. Remember: Calculate the increment from the ratio, then add it to the existing holding.

Hint Common mistake: Confusing extra shares with total shares, or assuming that a higher share count alone proves an increase in economic wealth.

X-A-040

From the practice bank · 12

A company subdivides each fully paid share with a face value of ₹10 into fully paid shares with a face value of ₹2. An investor holds 120 shares before the split. How many shares will the investor hold afterwards?

600 applies the correct subdivision factor and preserves aggregate face value. Conversion factor = old face value ÷ new face value = ₹10 ÷ ₹2 = 5 new shares per old share. New holding = 120 × 5 = 600 shares. Check: old aggregate face value = 120 × ₹10 = ₹1,200. New aggregate face value = 600 × ₹2 = ₹1,200. Remember: The lower denomination changes the number of shares, not the aggregate face value under this split.

Hint Common mistake: Confusing a fall in face value with a reduction in the number of shares held. Actual market-price behaviour is not determined by this arithmetic alone.

X-A-041

From the practice bank · 13

A company declares a cash dividend explicitly equal to 60% of its ₹5 face value per share. An eligible investor holds 800 fully paid shares, currently trading at ₹150 each. What is the gross dividend payable to this investor?

₹2,400 uses the stated face-value base and the full eligible holding. Dividend per share = 60% × ₹5 = ₹3. Gross dividend for 800 shares = 800 × ₹3 = ₹2,400. The ₹150 market price is not used in the declared cash amount. It would be relevant to a separate dividend-yield calculation. Remember: Read the base of every percentage: face value, price and principal are not interchangeable.

Hint Common mistake: Multiplying the declared dividend percentage by market price without checking the wording.

X-A-042

From the practice bank · 14

A company initially has 10,00,000 ordinary shares outstanding. It buys back and cancels 2,00,000 shares. An investor who does not participate continues to hold 10,000 shares. With no other change in share count, what percentage of the outstanding shares does this investor own afterwards?

1.25% uses the unchanged investor holding and smaller outstanding share count. Before the buyback, ownership = 10,000 ÷ 10,00,000 × 100 = 1.00%. After cancellation, outstanding shares = 10,00,000 − 2,00,000 = 8,00,000. The investor retains 10,000 shares, giving 10,000 ÷ 8,00,000 × 100 = 1.25%. This concerns percentage ownership, not a forecast of the share price. Remember: An unchanged numerator divided by a smaller positive denominator produces a larger ownership fraction.

Hint Common mistake: Reducing the non-participating investor’s share count when only tendered shares were bought back and cancelled.

X-A-043

From the practice bank · 15

Under a completed merger’s stated exchange terms, an investor receives three shares of the acquiring company for every five shares held in the target company. The investor owns 425 eligible target-company shares. How many acquiring-company shares are received?

255 applies three acquiring shares to each of the 85 blocks. The terms provide three acquiring-company shares for every block of five target-company shares. 425 target shares form 425 ÷ 5 = 85 complete blocks. Entitlement = 85 × 3 = 255 acquiring-company shares. The original target holding is not added to this allotment as though both remained unchanged. Remember: Write the ratio with units: target shares × acquiring shares / target shares.

Hint Common mistake: Applying only the numerator of an exchange ratio or reversing the acquiring and target quantities.

X-A-044

From the practice bank · 16

An investor sees that SEBI has issued observations on a public-offer document. Which conclusion can the investor properly draw about those observations?

This correctly separates regulatory observations from investment merit and investor-specific suitability. The claim in the question tries to turn an offer-document review into an investment-merit conclusion. An investor must still evaluate the disclosed business, terms and risks. The existence of SEBI observations does not settle the issuer’s future profitability, the offer’s valuation or individual suitability. This explanation concerns the meaning of the observations, not a promise that every disclosure is accurate or that losses cannot occur. Remember: Disclosure review is not a substitute for evaluating an investment and its suitability.

Hint Common mistake: Treating a regulator’s involvement as an endorsement of commercial merit.

X-A-045

From the practice bank · 17

CASE: A rights issue offers one new share for every four held, at ₹130 a share. An investor holds 800 shares. How much must the investor pay to take up the full entitlement?

The entitlement is 800 ÷ 4 = 200 new shares. 200 × ₹130 = ₹26,000. Remember: Entitlement quantity and subscription price are separate inputs. Use the price set for the new shares.

Hint Common mistake: Applying the issue price to the original holding or using the market quote instead of the subscription price.

X-A-046

From the practice bank · 18

CASE: A company with 1,00,00,000 shares makes a rights issue of one new share for every four held, at ₹130 a share. The whole issue is taken up. How much cash does the company raise?

New shares = 1,00,00,000 ÷ 4 = 25,00,000. 25,00,000 × ₹130 = ₹32.50 crore. Remember: Company proceeds depend on newly issued shares paid for, not the whole pre-existing share capital.

Hint Common mistake: Confusing the denominator used to calculate an entitlement with the number of shares actually subscribed.

X-A-047

From the practice bank · 19

CASE: A company has 1,00,00,000 shares trading at ₹180. It issues one rights share for every four held, at ₹130, and the issue is fully taken up. Assume the value after the issue equals the old market value plus the cash raised. What is the theoretical ex-rights price?

Value after = ₹180 crore + ₹32.50 crore = ₹212.50 crore. Shares after = 1.25 crore. Price = ₹212.50 crore ÷ 1.25 crore = ₹170. Remember: Weight the old and new prices by their corresponding share counts. Do not average the two prices equally.

Hint Common mistake: Confusing a theoretical ex-rights calculation with a forecast of the actual market quote.

X-A-048

From the practice bank · 20

CASE: A company has 1,00,00,000 shares and issues one rights share for every four held. The issue is fully taken up. An investor holds 800 shares and takes up the full entitlement. What is the investor's ownership after the issue?

Before: 800 ÷ 1,00,00,000 = 0.0080%. After: 1,000 ÷ 1,25,00,000 = 0.0080%. Taking up the full entitlement keeps the stake the same. Remember: Compare numerator and denominator together when measuring dilution or preservation of ownership.

Hint Common mistake: Updating the investor’s shares but not the company’s total, or confusing a fraction with its percentage.

X-A-049

From the practice bank · 21

CASE: Shares trade at ₹180 before a rights issue, and the theoretical ex-rights price is ₹170. An investor holds 800 shares and lets the rights lapse with no payment for them. How does the value of the holding change?

Before: 800 × ₹180 = ₹1,44,000. After: 800 × ₹170 = ₹1,36,000. The value falls by ₹8,000. Remember: Distinguish entitlement value, subscription cost and the final value of the shareholding.

Hint Common mistake: Treating the cost of exercising rights as the amount lost by not exercising. Actual prices and realisable rights-sale receipts are not guaranteed by the model.

X-A-050

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