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NISM-Series-X-A: Investment Adviser (Level 1) · Securities Market Segments

Overview of the Indian Securities Market Structure

Updated 11 October 2026 · Fact-checked

The Indian securities market is where securities are issued and traded. It has a primary market (new issues, money goes to the issuer) and a secondary market (trading between investors, no money to the issuer). Trading happens in the cash segment and the derivatives segment. SEBI regulates it. To solve questions, identify who gets the money and what is traded.

Understand Overview of Indian Securities Market

A security is a tradable financial claim, such as a share, bond, mutual fund unit or derivative contract. The securities market is the system that lets issuers raise money by creating securities and lets investors buy and sell them later.

The market has two layers. In the primary market, an issuer sells new securities, for example through an IPO, and the money goes to the issuer. In the secondary market, investors trade existing securities on stock exchanges. The issuer does not receive the sale price. The secondary market gives liquidity, which is why people are willing to buy in the primary market.

The market is also split by what is traded. The cash (equity) segment deals in shares and similar securities where you buy or sell the security itself and settle by delivery and payment. The derivatives segment deals in contracts such as futures and options whose value is derived from an underlying asset, such as a share or an index. Debt, currency and commodity segments sit alongside these.

Many participants make this work. Issuers raise funds. Investors (retail, institutional, foreign) supply funds. Intermediaries such as stock brokers, merchant bankers, depository participants, registrars and mutual fund distributors connect them. Market infrastructure institutions are stock exchanges, clearing corporations and depositories. Regulators, mainly SEBI, make rules and supervise everyone.

For the X-A exam, expect short factual questions: which market, which segment, which participant does what, and who regulates.

Key formulas to remember

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.

How to solve Overview of Indian Securities Market questions

Use the same short routine for any question on market structure or participants.

  1. 1Read the question and underline the key action: issuing, trading, clearing, holding, regulating or advising.
  2. 2Decide the stage. New securities and money to the issuer means primary. Trading of existing securities means secondary.
  3. 3Decide the segment. The security itself means cash. A contract based on an underlying means derivatives.
  4. 4Match the participant to its role: exchange for trading, clearing corporation for settlement guarantee, depository for electronic holding, intermediary for service, SEBI for regulation.
  5. 5Eliminate options that swap roles, such as giving a depository the job of trading.
  6. 6Check for absolute words like 'always' or 'only' and be careful with them.
  7. 7Pick the option that fits both stage and role, then move on.

Quickest way: Two-question filter

When to use it: Use when you have under a minute and the question asks you to classify a market, activity or participant.

  1. Ask: does the issuer receive the money? Yes means primary, no means secondary.
  2. Ask: is it the security or a contract on it? Security means cash, contract means derivatives.
  3. Match the participant to its one core job and reject options that mix jobs.

Common mistakes in Overview of Indian Securities Market

  • Saying the issuer gets money when shares are bought on the exchange.

    Students link any purchase of shares with company funding.

    Fix: Only primary market purchases fund the issuer. Exchange trades pass money between investors.

  • Treating an IPO as a secondary market event.

    The shares get listed and traded soon after, so the two blur.

    Fix: The issue itself is primary. Trading after listing is secondary.

  • Placing futures and options in the cash segment.

    Both are traded on the same exchange screens.

    Fix: Futures and options are derivatives because their value depends on an underlying.

  • Confusing depositories with stock exchanges.

    Both are called market institutions and both appear in demat questions.

    Fix: Exchanges provide the trading platform. Depositories hold securities in electronic form.

  • Calling SEBI a market participant that trades or issues securities.

    Students list every named body as a participant.

    Fix: SEBI is the regulator. It supervises and makes rules, and it does not trade or issue.

Worked examples

Example 1

A company sells new shares to the public through an IPO and receives ₹500 crore. Later, an investor sells 100 of these shares to another investor on the exchange for ₹1,00,000. Which statement is correct? (a) Both transactions are primary market. (b) The IPO is primary and the exchange sale is secondary; the company receives nothing from the exchange sale. (c) The IPO is secondary and the exchange sale is primary. (d) Both are secondary and the company receives the ₹1,00,000.

Show the solution
  1. Step 1: The IPO creates new shares and the company receives ₹500 crore. That is the primary market.
  2. Step 2: The exchange sale is between two investors in existing shares. That is the secondary market.
  3. Step 3: In the secondary sale, the ₹1,00,000 goes to the selling investor, not the company.
  4. Step 4: Only option (b) matches these facts.

Answer: (b)

Example 2

Which of these is a derivatives segment activity? (a) Buying 50 shares of a listed company for delivery. (b) Subscribing to a company's rights issue. (c) Buying a Nifty index futures contract. (d) Opening a demat account.

Show the solution
  1. Step 1: Buying shares for delivery deals in the security itself, so it is the cash segment.
  2. Step 2: A rights issue is a fresh issue to existing shareholders, so it is primary market.
  3. Step 3: A Nifty futures contract takes its value from an underlying index. That is a derivative.
  4. Step 4: Opening a demat account is an account service, not a trading segment.

Answer: (c) Buying a Nifty index futures contract.

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.

Practice questions from Securities Market Segments

Overview of Indian Securities Market in other exams

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

Overview of Indian Securities Market: frequently asked questions

What is the difference between primary and secondary market?

In the primary market, an issuer sells new securities and receives the money. In the secondary market, investors trade existing securities among themselves, usually on an exchange, and the issuer gets nothing from these trades.

What are the main participants in the Indian securities market?

They are issuers, investors, intermediaries such as brokers and distributors, market infrastructure institutions such as exchanges, clearing corporations and depositories, and regulators led by SEBI.

What is the difference between cash and derivatives segments?

The cash segment trades the security itself, such as a share. The derivatives segment trades contracts like futures and options whose value depends on an underlying asset or index.

Is this topic important for NISM X-A?

It is foundational for the Securities Market Segments chapter, and later chapters on equity, debt and derivatives build on it. Know the basic classifications well, since they are easy marks.