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NISM-Series-XV: Research Analyst · Introduction to Securities Market

Securities Market Overview and Participants for NISM Series XV

Updated 11 October 2026 · Fact-checked

The securities market is where long-term funds move from savers to those who need capital, through issuing and trading securities. Participants are issuers, investors, intermediaries and regulators. To solve questions, identify each party's role: who raises money, who invests, who facilitates, and who supervises.

Understand Securities Market Overview and Participants

A securities market is a system where securities such as shares, bonds and units are issued and traded. It links people who have surplus money with people who need money for business or government spending.

This link is called capital formation. Savers put money into securities. Issuers use that money to build factories, expand business or fund projects. Without the market, savings may sit idle or be used less productively.

The market has two parts. The primary market is where securities are issued for the first time and the issuer receives the money. The secondary market is where existing securities are traded among investors. The issuer does not receive money from secondary trades. The secondary market gives liquidity, which means investors can sell when they want. It also helps in price discovery, which means demand and supply set the fair price.

The participants fall into four groups:

  • Issuers: companies, governments and other entities that raise funds by issuing securities.
  • Investors: retail and institutional investors who buy securities, such as mutual funds, insurers, banks and foreign portfolio investors.
  • Intermediaries: brokers, depositories, depository participants, clearing corporations, merchant bankers, registrars, custodians and the like, who help the market work.
  • Regulators: SEBI is the main securities market regulator. Others such as RBI and the government (Ministry of Finance) also affect the market.

Market infrastructure includes stock exchanges, clearing corporations and depositories. Exchanges provide the trading platform, clearing corporations guarantee and settle trades, and depositories hold securities in electronic form.

Key formulas to remember

Capital formation chain
Savers (investors) → securities market → issuers → investment in productive assets
Use this to answer questions on the role of the market in capital formation.
Primary vs secondary market
Primary: money goes to the issuer. Secondary: money goes to the selling investor.
A very common test point. The issuer gets no money from secondary trades.
Four groups of participants
Issuers + Investors + Intermediaries + Regulators
Classify any named entity into one of these groups.
Key functions of the market
Capital mobilisation, liquidity, price discovery, risk management, efficient allocation of resources
Know these as a list. Options often mix in functions that do not belong.

How to solve Securities Market Overview and Participants questions

Use this method for any question on the securities market and its participants.

  1. 1Read the question and mark whether it asks about a function, a market segment, or a participant.
  2. 2If it names an entity, decide which group it belongs to: issuer, investor, intermediary or regulator.
  3. 3If it asks about money flow, check who receives the money: the issuer (primary) or another investor (secondary).
  4. 4If it asks about a function, match it to the right word: raising funds, liquidity, price discovery or resource allocation.
  5. 5Eliminate options that give an entity the wrong role, such as a regulator acting as a trader.
  6. 6Check for words like 'only', 'always' and 'never'. Pick the option that is precisely true.
  7. 7Choose the answer and move on.

Quickest way: Four-bucket sort

When to use it: For one-line questions asking who does what in the securities market.

  1. Put the entity in a bucket: raises money, invests money, helps trades, or supervises.
  2. Check the market segment: new issue is primary, trading is secondary.
  3. Pick the option matching that bucket and segment.

Common mistakes in Securities Market Overview and Participants

  • Thinking the issuer receives money when shares trade on the exchange.

    Students confuse buying a share with funding the company.

    Fix: Only primary market issues bring money to the issuer. Secondary trades transfer money between investors.

  • Treating stock exchanges as issuers or regulators.

    Exchanges are prominent and seem to control the market.

    Fix: Exchanges are market infrastructure that provide a trading platform. They have some rule-making for members, but SEBI is the regulator.

  • Confusing depositories with depository participants.

    The names look alike.

    Fix: A depository holds securities in electronic form. A depository participant is its agent that serves the investor.

  • Ignoring institutional investors when listing investors.

    Students think only individuals invest.

    Fix: Remember mutual funds, insurers, banks and foreign portfolio investors are also investors.

  • Listing a wrong function such as guaranteeing returns.

    Options sound positive about the market.

    Fix: The market gives liquidity and price discovery. It does not guarantee returns.

Worked examples

Example 1

A company issues new shares to the public and receives ₹500 crore. Later, an investor sells 1,000 of these shares to another investor on an exchange. Who receives the money from the second transaction?

Show the solution
  1. The first transaction is a fresh issue, so it is in the primary market. The company receives the ₹500 crore.
  2. The second transaction is a trade of existing shares, so it is in the secondary market.
  3. In the secondary market, the buyer pays the seller.
  4. So the company does not receive money from the second transaction.

Answer: The selling investor receives the money, not the company.

Example 2

Which of the following is an intermediary in the securities market? (A) A company issuing bonds (B) A retail investor buying shares (C) A depository participant (D) A person who invests in mutual fund units

Show the solution
  1. Option A raises funds, so it is an issuer.
  2. Options B and D buy securities, so they are investors.
  3. Option C is an entity that helps investors hold and transfer securities, so it is an intermediary.
  4. Only C fits the intermediary group.

Answer: (C) A depository participant

Exam tips

  • Expect simple classification questions: name an entity and pick its category.
  • Always ask who receives the money. This separates primary from secondary questions.
  • Learn the functions of the market as a short list and watch for an option that does not belong.
  • Remember SEBI is the main securities market regulator, but RBI and the government also have roles.
  • Negative marking in this exam is 25% of the marks assigned to a question, so a wrong answer costs 0.25 mark on a 1-mark question. A blind guess among four options has a small positive expected value: 0.25 × 1 − 0.75 × 0.25 = 0.0625, or about 0.06 mark. Eliminating options raises it. With three options left, the expected value is about 0.17 mark. Whether to guess is a risk decision: the expected gain is positive but small, and a single guess can still cost you 0.25 mark.

Practice questions from Introduction to 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 role of the securities market in capital formation?

It moves savings from investors to issuers who need long-term funds. Issuers use the funds for business and projects. This builds productive assets in the economy.

Who are the main participants in the securities market?

They are issuers, investors, intermediaries and regulators. Market infrastructure such as exchanges, clearing corporations and depositories supports them.

What is the difference between primary and secondary market?

In the primary market, securities are issued for the first time and the issuer receives the funds. In the secondary market, existing securities are traded between investors, which provides liquidity.

Is the Introduction to Securities Market chapter important for NISM Series XV?

Yes, it builds the base for later chapters on equity, debt and regulation. Questions are usually direct and definition based, so it is a good chapter to score in.