Unit study guide · NISM Series XXI-A
Introduction to Securities Markets
7 questions in this unit
What this unit covers
- An IPO includes newly issued shares worth ₹300 crore and an offer for sale by an existing shareholder worth ₹120 crore. Ignoring issue costs, which amount goes to the company?
- A shareholder owns 500 shares. A rights offer permits 2 new shares for every 5 held at ₹120 per new share. What payment is needed to take up the entire entitlement?
- Which service most directly belongs to the depository and depository-participant system rather than to a portfolio manager’s investment-research team?
- After an exchange trade is executed, which function is most directly associated with the clearing corporation?
- A wealthy family establishes a dedicated organisation to coordinate its investments, reporting and succession-related financial administration. Which description is most appropriate?
- A buy limit order for 400 shares is entered at ₹250. The lowest available selling price remains ₹253. What follows from the limit instruction alone?
- In a simplified settlement process, a custodian checks that securities are available and a clearing bank transfers the required money. Which interpretation best fits these functions?
Key ideas
From the practice bank · 1
An IPO includes newly issued shares worth ₹300 crore and an offer for sale by an existing shareholder worth ₹120 crore. Ignoring issue costs, which amount goes to the company?
A fresh issue creates new securities and raises money for the issuer. An offer for sale transfers an existing holder’s securities. Separate the two components instead of treating the entire IPO size as fresh company funding. The company receives ₹300 crore. The selling holder receives the ₹120 crore offer-for-sale proceeds before applicable costs. Remember: Total offer size and fresh capital raised by the issuer need not be equal.
Hint Common mistake: Assuming that all money collected during an IPO enters the company.
XXI-A-012From the practice bank · 2
A shareholder owns 500 shares. A rights offer permits 2 new shares for every 5 held at ₹120 per new share. What payment is needed to take up the entire entitlement?
A rights ratio determines the number of additional shares offered, while the issue price determines the payment for those shares. Calculate entitled shares: 500 × 2 ÷ 5 = 200. Calculate payment: 200 × ₹120 = ₹24,000. Existing shares are not purchased again. Remember: Calculate the entitlement before applying the rights issue price.
Hint Common mistake: Multiplying the issue price by the existing holding instead of the new entitlement.
XXI-A-013From the practice bank · 3
Which service most directly belongs to the depository and depository-participant system rather than to a portfolio manager’s investment-research team?
Securities infrastructure supports holding and settlement. It does not substitute for investment selection. Identify the activity involving ownership records and transfers rather than forecasting returns. The depository-participant arrangement provides access to the electronic holding system. Research teams decide what to analyse or recommend. Remember: Separate investment decisions from the infrastructure that records their resulting holdings.
Hint Common mistake: Assuming that a service provider holding records also selects investments.
XXI-A-014From the practice bank · 4
After an exchange trade is executed, which function is most directly associated with the clearing corporation?
Execution, clearing and settlement are related but distinct parts of the securities transaction process. Execution creates the trade through the trading mechanism. Clearing then establishes what participants owe and receive, with settlement-risk controls. This is different from choosing the investment. Remember: Know which institution handles the transaction process after the trade is matched.
Hint Common mistake: Treating execution and clearing as the same activity.
XXI-A-015From the practice bank · 5
A wealthy family establishes a dedicated organisation to coordinate its investments, reporting and succession-related financial administration. Which description is most appropriate?
Market participants include organisations that invest or oversee capital, as well as institutions that operate market infrastructure. The organisation serves a family’s wealth-management needs across functions. That purpose identifies a family office, whereas the other choices provide different services to market participants. Remember: Classify a participant by its purpose rather than by the amount of money it handles.
Hint Common mistake: Confusing an institutional investor’s organisation with securities-market infrastructure.
XXI-A-016From the practice bank · 6
A buy limit order for 400 shares is entered at ₹250. The lowest available selling price remains ₹253. What follows from the limit instruction alone?
A limit order controls acceptable execution price but can leave some or all of an order unfilled. Compare the ₹250 maximum with the ₹253 available offer. The offered price exceeds the permitted price, so the instruction alone does not produce a trade. Later market changes could alter the outcome. Remember: Price protection and execution certainty are different features.
Hint Common mistake: Assuming that a limit price is a promised execution price.
XXI-A-017From the practice bank · 7
In a simplified settlement process, a custodian checks that securities are available and a clearing bank transfers the required money. Which interpretation best fits these functions?
Settlement involves the coordinated movement of securities and money, with defined responsibilities and reconciliations. Identify the securities leg and the funds leg in the stated process. Do not infer investment or tax decision-making powers from a provider’s operational role. Each leg needs appropriate controls. Remember: A completed payment is not by itself proof of completed securities settlement.
Hint Common mistake: Conflating responsibility for settlement cash with authority to manage investments.
XXI-A-018