Unit study guide · NISM Series II-A
Secondary Market Transactions
10 questions in this unit
What this unit covers
- What is the central function of the secondary securities market?
- What does listing a security on a recognised stock exchange principally enable?
- Which named SEBI framework deals with continuing listing obligations and disclosures by listed entities?
- An investor enters a buy limit order at ₹200. The lowest available sell offer is ₹202. What happens while those prices remain unchanged?
- How does trade settlement differ from the matching or execution of a securities order?
- An investor buys 100 shares at ₹320. The example contract adds ₹40 brokerage and ₹60 other charges. What is the total purchase outflow?
- An investor finds a securities debit that does not match any authorised instruction. What is the most appropriate immediate response?
- The best displayed buy price is ₹210 and the best displayed sell price is ₹212. What is the quoted bid-ask spread?
- A buy order fills 200 shares at ₹101 and 300 at ₹103. Excluding charges, what is the average purchase price per share?
- An investor buys 100 shares at ₹250 with ₹100 purchase costs. Later, 60 sell at ₹270 with ₹40 sale costs. Allocate purchase costs proportionately. What is realised profit?
Key ideas
From the practice bank · 1
What is the central function of the secondary securities market?
The secondary market enables investors to trade already issued securities, which can provide an exit route and market price discovery. Remember: The secondary market trades existing securities rather than necessarily creating new capital.
Hint The securities exist before the transaction between the investors. Common mistake: Assuming every exchange trade raises fresh money for the issuer.
II-A-131From the practice bank · 2
What does listing a security on a recognised stock exchange principally enable?
Listing principally enables the security to trade on the exchange under its applicable trading and compliance framework. Remember: Listing gives market access together with obligations, not a return guarantee.
Hint Listing concerns admission to a trading and compliance framework. Common mistake: Treating listing as insurance against issuer failure.
II-A-132From the practice bank · 3
Which named SEBI framework deals with continuing listing obligations and disclosures by listed entities?
The Listing Obligations and Disclosure Requirements Regulations address continuing obligations and disclosures of listed entities. Remember: Different SEBI frameworks address different participants and obligations.
Hint Distinguish issuer disclosure duties from rules focused on particular misconduct or intermediaries. Common mistake: Using the name of an intermediary regulation for listed-issuer disclosure duties.
II-A-133From the practice bank · 4
An investor enters a buy limit order at ₹200. The lowest available sell offer is ₹202. What happens while those prices remain unchanged?
The buy order remains unexecuted against the ₹202 offer because that price is above the investor’s ₹200 limit. Remember: A limit order controls an acceptable price but does not guarantee execution.
Hint A buy limit specifies the maximum acceptable purchase price. Common mistake: Assuming entry of a limit order guarantees an immediate trade.
II-A-134From the practice bank · 5
How does trade settlement differ from the matching or execution of a securities order?
Settlement completes the required transfer of securities and funds, whereas execution establishes the trade on matched terms. Remember: An executed trade can still have delivery obligations to be completed.
Hint Agreement on a trade and completion of its delivery obligations are different stages. Common mistake: Treating order execution as proof that securities and cash have already been delivered.
II-A-135From the practice bank · 6
An investor buys 100 shares at ₹320. The example contract adds ₹40 brokerage and ₹60 other charges. What is the total purchase outflow?
The total purchase outflow is ₹32,100. Share value = 100 × ₹320 = ₹32,000. Add ₹40 + ₹60 = ₹100 to get ₹32,100. Remember: Purchase outflow includes the share consideration and stated transaction costs.
Hint Charges paid on a purchase increase the cash required. Common mistake: Using gross traded value as the full amount paid.
II-A-136From the practice bank · 7
An investor finds a securities debit that does not match any authorised instruction. What is the most appropriate immediate response?
The investor should report and investigate the debit through the relevant participant and complaint channels so the transaction and authority can be checked. Remember: Unrecognised securities movements should be investigated rather than hidden or ignored.
Hint An unexplained debit is a control issue, not simply an investment-performance issue. Common mistake: Waiting for a market-price change to resolve a possible account-security problem.
II-A-137From the practice bank · 8
The best displayed buy price is ₹210 and the best displayed sell price is ₹212. What is the quoted bid-ask spread?
The quoted bid-ask spread is ₹2. Calculation: ₹212 best sell price − ₹210 best buy price = ₹2. Remember: The bid-ask spread measures the gap between the best opposing prices.
Hint The spread is the gap between the two opposing quotes. Common mistake: Confusing the spread with the average of the buy and sell quotes.
II-A-138From the practice bank · 9
A buy order fills 200 shares at ₹101 and 300 at ₹103. Excluding charges, what is the average purchase price per share?
The average price is ₹102.20. Total cost = 200 × ₹101 + 300 × ₹103 = ₹51,100. Total shares = 500. Average = ₹51,100 ÷ 500 = ₹102.20. Remember: Average execution price is weighted by the quantity filled at each price.
Hint The fill with more shares carries greater weight in the average. Common mistake: Taking a simple average when fill quantities differ.
II-A-139From the practice bank · 10
An investor buys 100 shares at ₹250 with ₹100 purchase costs. Later, 60 sell at ₹270 with ₹40 sale costs. Allocate purchase costs proportionately. What is realised profit?
Realised profit is ₹1,100. Price gain = 60 × (₹270 − ₹250) = ₹1,200. Allocated purchase costs = ₹100 × 60 ÷ 100 = ₹60. Net realised profit = ₹1,200 − ₹60 − ₹40 = ₹1,100. Remember: Realised profit should match the sold quantity with its relevant costs.
Hint Match the sold shares with their share of purchase cost and then subtract the selling cost. Common mistake: Charging all acquisition costs to a partial sale or ignoring acquisition costs entirely.
II-A-140