NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1)

Securities Market Segments: formula sheet

Full chapter guide

Key formulas

Primary vs secondary: who gets the money: Primary market → proceeds go to the issuer; Secondary market → proceeds go to the selling investor; This is the single most tested distinction.
Market split by stage: Securities market = Primary market (issue) + Secondary market (trading); Every security is first issued, then traded.
Market split by product: Cash segment = underlying securities; Derivatives segment = contracts derived from an underlying; Futures and options belong to derivatives, not cash.
Role grouping: Issuers + Investors + Intermediaries + Market infrastructure institutions + Regulators; Use this to classify any named participant.
IPO vs FPO test: Unlisted company → IPO; already listed company → FPO; Both are public offers. Only the listing status of the issuer differs.
Book-built issue price: Issue price = highest price at which cumulative demand ≥ issue size; Add up demand from the top price downwards. Stop at the highest price where the total covers the issue.
Price band cap: Cap price must not exceed 120% of floor price; This is the SEBI ICDR limit on the width of the price band.
Rights entitlement: New shares = shares held × (rights ratio numerator ÷ denominator); Example: ratio 1:4 on 1,000 shares gives 1,000 × 1 ÷ 4 = 250 new shares.
Rights cost: Amount payable = rights shares × rights issue price; Use the rights price, not the market price.
Private placement limit: Offer to not more than 200 persons in a financial year; Excludes qualified institutional buyers and employees under ESOP, as per company law.
QIP buyers and floor price: Buyers = QIBs only; floor price = average of the weekly high and low of the closing prices of the shares during the two weeks preceding the relevant date; The floor price is worked out as at the relevant date. A discount of up to 5% on the floor price is allowed. The issuer must be a listed company and must comply with the minimum public shareholding requirements.
Book-built allocation (profitable route): QIB ≤ 50%; non-institutional ≥ 15%; retail ≥ 35% (of the net offer to the public); These percentages are of the net offer to the public, that is, after reservations such as the employee reservation. For issuers using the alternative route (not meeting profitability track record), QIB is not less than 75%, non-institutional not less than 15%, retail not more than 10%, again of the net offer.
Retail investor: Retail individual investor bids up to ₹2,00,000; Retail individual investors, and employees bidding in the employee reservation up to ₹2,00,000, can bid at the cut-off price.
Settlement day: Settlement day = T + 1 working day; T is the trade day. Weekends and exchange holidays do not count as working days.
Three stages of a trade: Trading → Clearing → Settlement; Exchange handles trading. Clearing corporation handles clearing and guarantee. Depository and banks handle the movement of securities and funds.
Net obligation of a member: Net funds obligation = Total sale value − Total purchase value (netted across all securities); Positive means the member receives funds. Negative means the member pays. Funds are netted across securities as a single value. Securities are netted separately for each security, in quantity (number of shares), not in value. Clearing works on net positions.
Order price rules: Market order: executes at best available price. Limit order: executes at limit price or better.; A limit buy executes at or below the limit. A limit sell executes at or above it.
Depository roles: Investor → DP → Depository (NSDL or CDSL); You deal with the DP. The DP is linked to the depository. The depository records ownership electronically.
Market capitalisation: Market cap = Share price × Number of shares issued; Full market cap uses all issued shares.
Free-float market cap: Free-float market cap = Share price × Number of free-float shares; Free-float shares = issued shares less promoter, strategic and locked-in holdings. Free-float factor = free-float shares ÷ issued shares.
Index value: Index value = (Current free-float market cap ÷ Base market cap) × Base value; Base market cap is adjusted for corporate actions through the index divisor or base adjustment.
Weight of a stock: Weight = Stock's free-float market cap ÷ Total free-float market cap of index × 100; Weights are in percent and sum to 100.
Index return: Index return % = (Closing value − Opening value) ÷ Opening value × 100; This is a price return and excludes dividends. Total return indices include dividends.
Money market vs bond market: Original maturity ≤ 1 year → money market; > 1 year → bond market; Use this first to place any instrument.
T-bill return (discount instrument): Yield = (Face value − Price) ÷ Price × (365 ÷ Days to maturity); T-bills pay no coupon. The gain is the difference between purchase price and face value.
Standard T-bill tenors: 91 days, 182 days, 364 days; Learn these three exactly. Do not confuse them with 90, 180 or 365.
Issuer and risk: G-Sec/T-bill: sovereign, very low credit risk; corporate bond/CP/CD: credit risk of issuer; Higher credit risk generally means higher yield.
Contract value: Contract value = Futures price × Lot size; Notional exposure of one lot. Multiply by number of lots for the full position.
Futures profit/loss (long): P&L = (Price at exit − Entry price) × Lot size × Number of lots; For a short futures position, reverse the sign: (Entry − Exit).
Call buyer payoff at expiry: Payoff = max(Spot − Strike, 0) − Premium, per unit; Maximum loss is the premium paid. Profit is unlimited. Multiply by lot size.
Put buyer payoff at expiry: Payoff = max(Strike − Spot, 0) − Premium, per unit; Maximum loss is the premium. Maximum profit occurs if spot falls to zero.
Option writer payoff: Writer's payoff = − (Buyer's payoff); Derivatives are a zero-sum game between buyer and writer, before costs.
Breakeven: Call: Strike + Premium. Put: Strike − Premium; Spot price at expiry where the buyer neither gains nor loses.
Moneyness: Call ITM if Spot > Strike. Put ITM if Spot < Strike. ATM if Spot = Strike; Intrinsic value of an ITM option is the gap between spot and strike. OTM options have zero intrinsic value.
Currency derivative purpose: Hedge = lock in exchange rate (e.g. USD-INR) to cut currency risk; Exchange-traded currency futures and options (USD-INR, EUR-INR, GBP-INR, JPY-INR and the cross-currency pairs) are cash-settled in rupees, not by delivering foreign currency.
REIT vs InvIT: REIT → real estate assets; InvIT → infrastructure assets; Both are trusts. Publicly offered, listed REITs and InvITs must distribute at least 90% of net distributable cash flows to unit holders. SPV-level cash flows flow through to the trust.
SME platform: SME listing = small firms, lighter norms, higher risk, lower liquidity; Separate segment from the main board of the exchange.
Commodity derivatives regulator: Regulator = SEBI, traded on SEBI-recognised exchanges; Do not pick any separate commodity regulator in current-law questions. Settlement may be in cash or by physical delivery, depending on the contract.
Social stock exchange: SSE = segment of an existing stock exchange for social enterprises; It is not a separate standalone exchange.

Quick revision

IPO is the first public issue by an unlisted company; FPO is a further public offer by an already listed company.
A rights issue is offered to existing shareholders in proportion to their holdings.
Primary market creates new securities; secondary market trades existing ones.
Trading, clearing and settlement are separate stages; know who does each.
Depositories hold securities in electronic form; exchanges provide the trading platform.
An index measures the movement of a chosen basket of stocks.
Debt market covers government securities, corporate bonds and money market instruments.
Futures are obligations; options give the buyer a right, not an obligation.
Currency and commodity derivatives trade in their own segments, separate from equity.
SME platforms are for small and medium enterprises and have their own listing norms.
Check workbook figures for settlement cycles and limits; do not rely on memory.
Negative marking is 25% of the question's marks, so avoid blind guesses.

Common mistakes

Saying the issuer gets money when shares are bought on the exchange. Fix: Only primary market purchases fund the issuer. Exchange trades pass money between investors.
Treating an IPO as a secondary market event. Fix: The issue itself is primary. Trading after listing is secondary.
Calling a public offer by a listed company an IPO. Fix: Always check if the issuer is already listed. If yes, it is an FPO.
Using the market price to compute the cost of a rights issue. Fix: Amount payable uses the rights issue price. The market price only matters for deciding whether it is attractive.
Saying the stock exchange guarantees settlement. Fix: Guarantee and risk management belong to the clearing corporation, which becomes counterparty to trades.
Counting Saturday or Sunday as a settlement day. Fix: T+1 means one working day. A Friday trade settles on Monday unless Monday is a holiday.
Using full market cap instead of free-float market cap. Fix: Whenever the index is Nifty or Sensex, multiply shares by the free-float factor first.
Saying Sensex and Nifty use different weighting methods. Fix: Both use free-float market cap weighting. They differ in exchange, number of stocks and base value.
Saying T-bills pay periodic interest like dated G-Secs. Fix: T-bills are issued at a discount and redeemed at face value. The gain is the discount.
Treating CP and CD as the same instrument. Fix: CP is a promissory note issued by companies. CD is a deposit instrument issued by banks and certain financial institutions.

Exam tips

Expect plain classification questions. Settle each with two checks: who receives the money, and is it a security or a contract.
Learn one core job for each institution: exchange, clearing corporation, depository, intermediary, regulator.
X-A has negative marking of 25% of the marks for the question. Eliminate role-swap options before guessing, and skip only if you cannot narrow to two.
Watch caselet wording. A fresh issue means primary and a trade on the exchange means secondary, even if the shares are the same.
In NISM-Series-X-A, a wrong answer costs 25% of the marks of that question. On a 2-mark caselet question the penalty is double that of a 1-mark question, so guess only after you have removed at least one option.
Read the issuer status and the target investors first. Most questions on issue types are solved by those two facts.
Memorise the numbers in the formula list: 120%, 200 persons, ₹2,00,000, the 5% QIP discount and the book-built allocation split. Options often tweak one number.
In caselets, do the rights or book-building arithmetic before looking at options. Distractors are built from the common slips of using the market price or the wrong ratio.