Unit study guide · NISM Series XII
Primary Markets
30 questions in this unit
What this unit covers
- What is a company’s first public offer of its shares called?
- What is a later public share offer by an already publicly listed company called?
- Who receives the sale proceeds when existing shareholders sell shares through an offer for sale?
- Who is offered shares in a rights issue in proportion to existing holdings?
- What normally happens when a company makes a bonus issue?
- Which public-issue method uses investor bids to help discover the issue price?
- Which public-issue document provides details such as the issuer’s business, financial information and risk factors?
- What does an underwriter’s subscription commitment primarily address in a securities issue?
- Which intermediary typically processes applications and helps maintain allotment records for a public issue?
- A public offer consists entirely of newly issued shares. Which immediate effect distinguishes it from a pure offer for sale?
- An offer includes 3 lakh fresh shares and 2 lakh existing shares at ₹100 each. Ignoring expenses, how much reaches the company?
- A hypothetical share has ₹10 face value and is issued at ₹85. What is the issue premium per share?
- A rights issue offers two new shares for every five held. How many new shares can a holder of 300 shares subscribe for?
- A holder owns 240 shares and receives one bonus share for every three held. What is the total shareholding afterwards?
- A book-built offer has a ₹90–₹100 price band. What does the band tell applicants before the final price is determined?
- Under Applications Supported by Blocked Amount, what happens initially to the money authorised for an issue application?
- A shareholder transfers an eligible rights entitlement to another investor instead of subscribing. What is this action called?
- What is the main purpose of a green shoe arrangement in a public offer?
- Whose interests does a debenture trustee primarily represent in a debt issue?
- A debt issue has a favourable credit rating. Which conclusion is NOT correct?
- An investor says exchange listing guarantees that a new share will rise. What is the best correction?
- What mainly distinguishes a private placement from an offer made to the public?
- Which investor group is central to a Qualified Institutions Placement?
- What is the basic purpose of a shelf prospectus in eligible debt fundraising?
- A shareholder owns 20,000 of a company’s 1 lakh shares. The company issues 25,000 new shares to others. What is the shareholder’s new percentage?
- A company has 8 lakh shares and offers 2 lakh fresh plus 1 lakh existing shares. What percentage of post-offer shares are purchased through this offer?
- An application blocks ₹30,000. The investor receives 80 shares at ₹150 each. Assuming no other deductions, how much blocked money is released?
- A public offer is heavily subscribed and its advertisement highlights growth. The prospectus also describes major customer concentration. Which assessment is strongest?
- An investor receives 150 hypothetical bonds of ₹2,000 face value. The 9% annual coupon is paid half-yearly. What is each half-yearly coupon payment?
- In a hypothetical bid book, 40,000 shares are bid at ₹110 and 35,000 at ₹105. Another 30,000 are bid at ₹100. What demand accepts at least ₹105?
Key ideas
From the practice bank · 1
What is a company’s first public offer of its shares called?
An initial public offer is a company’s first public offer of shares. It may involve new shares, existing shares offered for sale, or both. Remember: An initial public offer is the first public share offer.
Hint Common mistake: Assuming a company's first public share sale must contain only newly created shares. Focus on the word first.
XII-046From the practice bank · 2
What is a later public share offer by an already publicly listed company called?
A further public offer is a subsequent public share offer by a company that has already made its initial public offer. Remember: Initial and further public offers differ in whether the company has offered shares publicly before.
Hint Common mistake: Calling every public share offer an initial public offer. Distinguish entering the public market from returning to it.
XII-047From the practice bank · 3
Who receives the sale proceeds when existing shareholders sell shares through an offer for sale?
The selling shareholders receive the proceeds because they sell shares they already own. The company does not raise fresh capital from that sale component. Remember: Offer-for-sale proceeds belong to the sellers of existing shares.
Hint Common mistake: Treating the entire public-offer value as money raised by the company. Identify who gives up the existing shares.
XII-048From the practice bank · 4
Who is offered shares in a rights issue in proportion to existing holdings?
A rights issue offers shares to eligible existing shareholders in a specified proportion. Investors must consider the subscription terms. Remember: Rights entitlement starts with eligible existing share ownership.
Hint Common mistake: Confusing a rights issue with an unrestricted first offer to the public. Think about whose ownership proportion the offer can help preserve.
XII-049From the practice bank · 5
What normally happens when a company makes a bonus issue?
A bonus issue capitalises eligible reserves into additional shares. It does not raise fresh cash from shareholders. Remember: A bonus issue changes the form of existing equity capital.
Hint Common mistake: Assuming more shares automatically create new company wealth. Consider whether money enters the company or existing reserves change form.
XII-050From the practice bank · 6
Which public-issue method uses investor bids to help discover the issue price?
Book building collects investor bids to help determine the issue price. A fixed-price issue uses a price decided before applications. Remember: Book building is a demand-based price-discovery process.
Hint Common mistake: Confusing the with an already finalised offer price. Think about collecting demand at different prices.
XII-051From the practice bank · 7
Which public-issue document provides details such as the issuer’s business, financial information and risk factors?
A prospectus provides information about the issuer and the offer, including important risks. It supports an investor’s assessment of the issue. Remember: Read the offer document to understand the issuer and its risks.
Hint Common mistake: Relying only on the issue’s advertisement or popularity. Look for the document intended to explain the public offer.
XII-052From the practice bank · 8
What does an underwriter’s subscription commitment primarily address in a securities issue?
An underwriter commits to subscribe for an agreed shortfall under the underwriting terms. That does not guarantee the security’s later price. Remember: Underwriting concerns subscription obligations rather than investment returns.
Hint Common mistake: Confusing an underwriting commitment with a profit guarantee. Think about whether the issue receives enough subscriptions.
XII-053From the practice bank · 9
Which intermediary typically processes applications and helps maintain allotment records for a public issue?
The registrar to the issue processes application information and supports allotment administration. It also maintains relevant investor records. Remember: Registrars perform important recordkeeping and administrative functions in issues.
Hint Common mistake: Assuming the stock exchange personally processes every investor application. Focus on application records and issue administration.
XII-054From the practice bank · 10
A public offer consists entirely of newly issued shares. Which immediate effect distinguishes it from a pure offer for sale?
A fresh issue increases the company’s issued share count because new shares are created. A pure offer for sale transfers existing shares. Remember: Fresh issuance changes the share count while an existing-share sale does not.
Hint Common mistake: Treating every public offer as only a transfer of existing ownership. Check whether the offer creates shares or transfers existing ones.
XII-055From the practice bank · 11
An offer includes 3 lakh fresh shares and 2 lakh existing shares at ₹100 each. Ignoring expenses, how much reaches the company?
The company receives ₹3 crore from its fresh shares. Company proceeds = 3,00,000 × ₹100 = ₹3,00,00,000. The ₹2 crore from existing shares goes to their sellers. Remember: Separate fresh-issue proceeds from offer-for-sale proceeds.
Hint Common mistake: Adding the offer-for-sale component to the company’s fresh funds. Use only the new shares when calculating the company’s proceeds.
XII-056From the practice bank · 12
A hypothetical share has ₹10 face value and is issued at ₹85. What is the issue premium per share?
The issue premium is ₹75 per share. Premium = ₹85 issue price − ₹10 face value = ₹75. Remember: Issue premium is the issue price above face value.
Hint Common mistake: Calling the entire issue price the premium. Distinguish the stated face value from the additional amount paid.
XII-057From the practice bank · 13
A rights issue offers two new shares for every five held. How many new shares can a holder of 300 shares subscribe for?
The entitlement is 120 new shares. New shares = 300 × 2 ÷ 5 = 120. Remember: Read a rights ratio as new shares offered for existing shares held.
Hint Common mistake: Reversing the numerator and denominator of the rights ratio. Apply the stated new-shares-to-existing-shares ratio.
XII-058From the practice bank · 14
A holder owns 240 shares and receives one bonus share for every three held. What is the total shareholding afterwards?
The holder has 320 shares after receiving 80 bonus shares. Bonus shares = 240 ÷ 3 = 80. Total shares = 240 + 80 = 320. Remember: Total post-bonus holdings include both old and bonus shares.
Hint Common mistake: Reporting only the bonus entitlement as the final holding. Calculate the additional shares, then add the original holding.
XII-059From the practice bank · 15
A book-built offer has a ₹90–₹100 price band. What does the band tell applicants before the final price is determined?
The band states the lower and upper prices for issue bidding. It is not a guarantee about the share’s later trading range. Remember: An issue price band applies to the offer process, not future returns.
Hint Common mistake: Mistaking an issue price band for a guaranteed post-listing range. Keep issue bidding separate from later market trading.
XII-060From the practice bank · 16
Under Applications Supported by Blocked Amount, what happens initially to the money authorised for an issue application?
Applications Supported by Blocked Amount reserves the authorised money in the applicant’s bank account. The allotment outcome determines the subsequent debit or release. Remember: Blocked application money is reserved pending the issue outcome.
Hint Common mistake: Assuming all application money leaves the bank account immediately. Distinguish reserving money from transferring it immediately.
XII-061From the practice bank · 17
A shareholder transfers an eligible rights entitlement to another investor instead of subscribing. What is this action called?
Transferring the rights entitlement is called renunciation of rights. The entitlement is distinct from an already allotted share. Remember: A rights entitlement can be different from the share obtained after subscription.
Hint Common mistake: Treating a transferred entitlement as if the new share has already been allotted. Focus on giving another person the subscription entitlement.
XII-062From the practice bank · 18
What is the main purpose of a green shoe arrangement in a public offer?
A green shoe arrangement supports post-listing price stabilisation within its terms. It does not guarantee the price or eliminate investment risk. Remember: Price-stabilisation support is not the same as a price guarantee.
Hint Common mistake: Assuming an offer with a stabilisation arrangement cannot produce a loss. Think about managing price pressure after the shares begin trading.
XII-063From the practice bank · 19
Whose interests does a debenture trustee primarily represent in a debt issue?
A debenture trustee represents the interests of debenture holders. Its duties relate to the debt issue and its terms. Remember: Debenture trustees protect the interests associated with the debt claim.
Hint Common mistake: Assuming the trustee’s primary duty is to maximise shareholder returns. Identify the investors who hold the debt claim.
XII-064From the practice bank · 20
A debt issue has a favourable credit rating. Which conclusion is NOT correct?
A favourable credit rating does not guarantee repayment. It is an assessment that can change with the issuer’s condition and other information. Remember: A credit rating is not repayment insurance.
Hint Common mistake: Treating a favourable rating as proof that default is impossible. Distinguish an assessment of risk from a guarantee.
XII-065From the practice bank · 21
An investor says exchange listing guarantees that a new share will rise. What is the best correction?
Listing enables exchange trading but does not assure a price gain. The market price may be above or below the issue price. Remember: Listing is not a guarantee of profitability.
Hint Common mistake: Confusing regulated market access with an investment endorsement. Separate access to a market from the outcome of an investment.
XII-066From the practice bank · 22
What mainly distinguishes a private placement from an offer made to the public?
A private placement offers securities to selected investors rather than the general public. The applicable process and restrictions still matter. Remember: The target investor group helps distinguish private and public offers.
Hint Common mistake: Assuming a private offer is outside all regulation. Compare the audience receiving the offer.
XII-067From the practice bank · 23
Which investor group is central to a Qualified Institutions Placement?
A Qualified Institutions Placement is directed to qualified institutional buyers. It differs from a general public offer or retail rights issue. Remember: Qualified Institutions Placement is an institutional fundraising route.
Hint Common mistake: Treating every private fundraising route as open to all retail investors. Distinguish institutional placements from retail fundraising routes.
XII-068From the practice bank · 24
What is the basic purpose of a shelf prospectus in eligible debt fundraising?
A shelf prospectus provides a framework for multiple eligible issues with the required accompanying disclosures. It is not permission to ignore material changes. Remember: A shelf prospectus supports repeated issuance within the applicable framework.
Hint Common mistake: Assuming one filing removes all later disclosure obligations. Think about a framework for more than one fundraising tranche.
XII-069From the practice bank · 25
A shareholder owns 20,000 of a company’s 1 lakh shares. The company issues 25,000 new shares to others. What is the shareholder’s new percentage?
The holding becomes 16% because the shareholder still owns 20,000 out of 1,25,000 shares. New total = 1,00,000 + 25,000 = 1,25,000. Holding = 20,000 ÷ 1,25,000 × 100 = 16%. Remember: New shares issued to others can dilute an existing ownership percentage.
Hint Common mistake: Using the old total share count after a fresh issue. The investor’s share count stays unchanged, but the total increases.
XII-070From the practice bank · 26
A company has 8 lakh shares and offers 2 lakh fresh plus 1 lakh existing shares. What percentage of post-offer shares are purchased through this offer?
The shares purchased through the offer represent 30% of post-issue shares. Offered shares = 2 lakh + 1 lakh = 3 lakh. Post-issue shares = 8 lakh + 2 lakh = 10 lakh. Percentage = 3 ÷ 10 × 100 = 30%. Remember: Existing-share sales change ownership but do not enlarge the share count.
Hint Common mistake: Adding offer-for-sale shares to the company’s issued capital. Count all shares bought in the offer, but add only fresh shares to the company total.
XII-071From the practice bank · 27
An application blocks ₹30,000. The investor receives 80 shares at ₹150 each. Assuming no other deductions, how much blocked money is released?
₹18,000 is released because only ₹12,000 is needed for the allotted shares. Allotment cost = 80 × ₹150 = ₹12,000. Release = ₹30,000 − ₹12,000 = ₹18,000. Remember: Unused blocked money equals the blocked amount less the allotment payment.
Hint Common mistake: Confusing the amount debited with the amount made available again. First calculate the payment for the allotted shares.
XII-072From the practice bank · 28
A public offer is heavily subscribed and its advertisement highlights growth. The prospectus also describes major customer concentration. Which assessment is strongest?
High subscription does not remove the disclosed customer-concentration risk. Investor demand and business risk are different considerations. Remember: Popularity is not a substitute for understanding disclosed risks.
Hint Common mistake: Treating an oversubscribed issue as automatically low risk. Compare investor popularity with evidence about the company’s underlying risk.
XII-073From the practice bank · 29
An investor receives 150 hypothetical bonds of ₹2,000 face value. The 9% annual coupon is paid half-yearly. What is each half-yearly coupon payment?
Each half-yearly payment is ₹13,500. Total face value = 150 × ₹2,000 = ₹3,00,000. Annual coupon = ₹3,00,000 × 9% = ₹27,000. Half-yearly payment = ₹27,000 ÷ 2 = ₹13,500. Remember: Coupon frequency determines how the annual coupon is divided.
Hint Common mistake: Applying the full annual rate to every half-yearly payment. Calculate the total face value, then divide the annual coupon between two payments.
XII-074From the practice bank · 30
In a hypothetical bid book, 40,000 shares are bid at ₹110 and 35,000 at ₹105. Another 30,000 are bid at ₹100. What demand accepts at least ₹105?
Demand at a price of at least ₹105 is 75,000 shares. Eligible demand = 40,000 at ₹110 + 35,000 at ₹105 = 75,000. The ₹100 bids are below that price. Remember: Cumulative demand at a price includes bids at that price and higher.
Hint Common mistake: Counting only bids at the exact price or including bids below it. Include bids at the stated price and above it.
XII-075On NSE, a circuit limit (price band) is the most a security's price may move in one trading session, measured from the previous day's close.
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