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NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

Securities Market Overview and Participants for NISM Series VII

Updated 11 October 2026 · Fact-checked

The securities market is where securities are issued and traded. The primary market is where issuers raise fresh money from investors. The secondary market is where existing securities trade between investors on exchanges. Participants include investors, issuers, intermediaries, depositories, clearing corporations and regulators. To solve questions, identify who does what and in which segment.

Understand Securities Market Overview and Participants

The securities market is the system through which money moves from people who have savings to those who need funds. Savers are investors. Those who need funds are issuers, such as companies, governments and public bodies. They issue securities like shares, bonds and units. Investors buy them in return for a claim on returns.

The market has two segments. The primary market is where securities are created and sold for the first time. The issuer receives the money. Examples are an IPO, a follow-on public offer, a rights issue and a bond issue. The secondary market is where already-issued securities are bought and sold among investors. The issuer does not receive money from these trades. Its main job is to give liquidity and a market price.

Trading in the secondary market happens on stock exchanges, which provide a platform and rules. Investors cannot trade directly there. They use stockbrokers (trading members), who are intermediaries. After a trade, a clearing corporation works out obligations and guarantees settlement. Depositories hold securities in electronic form, through depository participants (DPs). Custodians, banks and others support the process.

Regulators keep the system fair. SEBI is the main regulator of the securities market. It protects investors, develops the market and regulates intermediaries. Other bodies, such as the RBI, the Ministry of Finance and the Ministry of Corporate Affairs, also have roles in related areas. Self-regulatory and industry bodies, such as AMFI for mutual funds, support standards.

For Series VII, think in a chain: issuer, then investor, then broker, then exchange, then clearing corporation, then depository. Each link has one core job. Exam questions usually test whether you can match a participant to its job, or a transaction to its segment.

Key formulas to remember

Primary vs secondary market test
Issuer receives the money → primary market; investor receives the money → secondary market
Use this to classify any transaction in seconds.
Core job of each participant
Exchange = platform; Broker = access; Clearing corporation = settlement guarantee; Depository = holds securities; Regulator = rules and oversight
Most matching questions come from these five one-line roles.
Trade flow
Order → Exchange matching → Clearing corporation obligations → Pay-in/pay-out of funds and securities via banks and depositories
Remember the order. Trap options swap the steps.

How to solve Securities Market Overview and Participants questions

Use this method for any question on market structure or participants.

  1. 1Read the question stem and underline the activity described, such as issue, trade, clear, hold or regulate.
  2. 2Decide the segment: is fresh money going to the issuer, or are investors trading among themselves?
  3. 3Match the activity to the participant whose core job it is.
  4. 4Check whether the question asks for the main role or a possible role. Pick the main one.
  5. 5Eliminate options that give an intermediary a regulator's power, or the reverse.
  6. 6Watch words like 'only', 'always' and 'directly'. They often make an option wrong.
  7. 7Pick the answer that fits both the segment and the participant.

Quickest way: Money-flow and one-line role check

When to use it: Use when you have under a minute per question and the options look similar.

  1. Ask: who gets the money? Issuer means primary. Another investor means secondary.
  2. Ask: what is the verb? Trade means exchange or broker. Settle means clearing corporation. Hold means depository. Regulate means SEBI.
  3. Reject any option that says investors trade directly on the exchange without a broker.
  4. Choose the option that matches the verb.

Common mistakes in Securities Market Overview and Participants

  • Treating an exchange trade as a primary market transaction.

    Both involve buying shares, so they look alike.

    Fix: Check who receives the money. In normal exchange trading, the seller investor gets it, not the issuer.

  • Saying the stock exchange settles trades and guarantees them.

    Students blur the exchange and the clearing corporation.

    Fix: Exchange matches orders. The clearing corporation determines obligations and guarantees settlement.

  • Confusing a depository with a depository participant.

    The names are similar.

    Fix: The depository holds securities electronically. The DP is the agent through which an investor opens a demat account.

  • Thinking investors can trade directly on the exchange.

    Online apps make it feel direct.

    Fix: Apps are broker platforms. The trade is still routed through a registered trading member.

  • Calling brokers or exchanges the main regulator.

    Exchanges make and enforce rules for members, so they look like regulators.

    Fix: SEBI is the statutory regulator. Exchanges are frontline regulators of their members, under SEBI oversight.

Worked examples

Example 1

A company sells new shares to the public through an IPO and receives ₹500 crore. Later, an investor sells some of these shares to another investor on an exchange. Classify both transactions.

Show the solution
  1. In the IPO, shares are issued for the first time and the company receives the money.
  2. This fits the primary market test: the issuer receives the money.
  3. In the later sale, the shares already exist and the money goes from the buyer to the selling investor.
  4. The company receives nothing from this trade, so it fits the secondary market.

Answer: The IPO is a primary market transaction. The later exchange trade is a secondary market transaction.

Example 2

Which participant is mainly responsible for determining the obligations of members after trades are done on an exchange and guaranteeing their settlement?

A. Stock exchange
B. Depository
C. Clearing corporation
D. Depository participant

Show the solution
  1. The verbs are 'determine obligations' and 'guarantee settlement'.
  2. The stock exchange provides the trading platform and matches orders, so A is not the main answer.
  3. The depository holds securities in electronic form and the DP is its agent for investors, so B and D do not fit.
  4. The clearing corporation works out obligations and guarantees settlement, so C fits.

Answer: C. Clearing corporation

Exam tips

  • Practise one-line role matching until it is automatic. Many questions are direct matches.
  • Under negative marking, skip a question only if you cannot narrow to two options. Wrong answers cost a percentage of that question's marks.
  • Beware 'directly', 'only' and 'always' in options on participants.
  • Read for the segment first. Many wrong options describe a correct role in the wrong segment.
  • Revise the trade flow order, since sequence questions swap clearing, settlement and depository steps.

Practice questions from Introduction to the Securities Market

Securities Market Overview and Participants in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Securities Market Overview and Participants: frequently asked questions

What is the difference between primary market and secondary market?

In the primary market, an issuer sells new securities and receives the money. In the secondary market, investors trade existing securities with each other. The issuer does not receive money from secondary trades.

Who are the main participants in the Indian securities market?

They are investors, issuers, stockbrokers, stock exchanges, clearing corporations, depositories, depository participants, custodians, banks and regulators such as SEBI. Each has a distinct role in issue, trading, settlement or oversight.

Is a stock exchange a regulator?

No, SEBI is the statutory regulator. Exchanges set and enforce rules for their members and listed companies, but they work under SEBI's oversight.

How should I study this topic for NISM Series VII?

Learn the primary and secondary split, then one core job for each participant. Practise matching questions and read the stem for the key verb. Then move on to settlement and risk topics, which build on these roles.