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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors

Introduction to Securities Markets for NISM PMS Distributors

Introduction to Securities Markets is the base chapter of NISM-Series-XXI-A. It covers how the financial system works, what securities and instruments exist, who the market participants are, how trades are cleared and settled, and how indices and SEBI regulation fit in. Learn definitions, roles and sequences precisely, because the MCQs test them directly.

What this chapter covers

This chapter gives you the vocabulary and the map of the securities market. You learn how savings move from savers to borrowers through the financial system, and how the primary and secondary markets differ. You also meet the instruments: equity, debt, and other products that a portfolio manager may hold.

The chapter then moves to the people and institutions: stock exchanges, brokers, depositories, clearing corporations, custodians, registrars and regulators. It follows a trade from order to settlement, and ends with market indices and the regulatory framework under SEBI.

This connects to the rest of the paper. PMS is a product built on securities, so later chapters on portfolio management, products, risk and regulation all assume you already know these terms. If this chapter is weak, later questions become harder to read, let alone answer.

This chapter is a foundation chapter, and its questions are usually direct: a definition, a role, or a who-does-what match. These are marks you can secure with careful reading rather than calculation. The paper is a 100-question MCQ exam with negative marking of 10% of the marks assigned to a question, so a wrong guess costs you, and clear knowledge here lets you answer quickly and save time for harder chapters. The same concepts also appear inside questions in later chapters, so learning them well pays off more than once.

Introduction to Securities Markets: topics in the order to study them

  1. 1Overview of Securities Markets and Financial SystemStart here because it sets the big picture of savers, borrowers, and primary versus secondary markets that everything else hangs on.
  2. 2Types of Securities and Market InstrumentsOnce you know the system, learn what is actually traded, since participants and trading rules refer to these instruments.
  3. 3Market Participants and IntermediariesNow learn who operates in the market, so the trading process in the next topic has named actors.
  4. 4Trading, Clearing and SettlementThis topic uses the instruments and participants you have learned and shows how they work together in a trade cycle.
  5. 5Market Indices and Regulatory FrameworkFinish with indices and SEBI's role, which tie the chapter together and lead into the regulation-heavy chapters ahead.

How to prepare Introduction to Securities Markets

Treat this chapter as a vocabulary and roles chapter. Short, repeated sessions work better than one long read, especially on a phone.

  1. Read each topic once for understanding, in the order given, without trying to memorise yet.
  2. Make a one-page list of terms with a single-line meaning each, such as primary market, secondary market, depository, clearing corporation and custodian.
  3. For participants, write who does what in one line, and test yourself by covering the role and recalling it.
  4. Draw the trade flow from order placement to settlement in your own words, and check that you can name each party in sequence.
  5. Solve MCQs topic by topic and note why each wrong option is wrong, especially options that swap the roles of two institutions.
  6. Revisit your term list on three separate days, and spend extra time on items you got wrong.
  7. Before the exam, read the quick revision points once and stop; do not start new material.

Common mistakes in Introduction to Securities Markets

  • Mixing up the roles of depository, clearing corporation and custodian

    Fix: Write one line per institution: depository holds securities, clearing corporation settles and guarantees trades, custodian safeguards assets for clients.

  • Confusing primary and secondary market activity

    Fix: Ask where the money goes. If it goes to the issuer, it is primary. If it goes to another investor, it is secondary.

  • Memorising index names without knowing what an index does

    Fix: Learn first that an index tracks a basket of securities and serves as a benchmark, then learn the specific indices in your workbook.

  • Treating the regulatory framework as a list to skim

    Fix: Learn what SEBI regulates and why, and match each intermediary to its regulation as the workbook states it.

  • Guessing freely on unfamiliar questions

    Fix: Eliminate options you know are wrong first, and answer only when you have narrowed the choice, since wrong answers are penalised.

  • Relying on general market knowledge instead of the NISM workbook

    Fix: Answer from the workbook's definitions and wording, because the exam tests those, and practice with questions that follow it.

Last-day revision: Introduction to Securities Markets

  • The primary market is where securities are issued for the first time; the secondary market is where existing securities are traded.
  • Equity represents ownership; debt represents a loan to the issuer with interest and repayment.
  • A depository holds securities in electronic form, and depository participants are its agents for investors.
  • A clearing corporation guarantees and manages the settlement of trades done on an exchange.
  • A custodian safeguards securities and handles related settlement and servicing for institutional clients.
  • A stock exchange provides the platform for trading; a broker places orders on it for clients.
  • A market index measures the movement of a group of securities and acts as a benchmark.
  • SEBI is the main regulator of the securities market in India and was set up to protect investors and develop the market.
  • Read the role in each question carefully: many options differ only in which institution performs the function.
  • Check the settlement cycle and terms against your workbook rather than from memory when in doubt.
  • Wrong answers carry a penalty of 10% of the question's marks, so skip only if you have no basis to choose.

Introduction to Securities Markets practice questions

Introduction to Securities Markets in other exams

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

Introduction to Securities Markets: frequently asked questions

Is Introduction to Securities Markets difficult for the PMS Distributors exam?

It is not calculation heavy. The difficulty is in remembering precise definitions and the roles of similar institutions. Regular revision and practice MCQs make it manageable.

How should I study this chapter if I already work in the market?

Still follow the workbook's wording, because exam answers follow it. Use practice questions to find gaps, then focus on those topics instead of rereading everything.

Which topic in this chapter should I give most time?

Give extra time to market participants and to trading, clearing and settlement, since questions often test who does what and in what order. Learn these as roles and sequences, not as isolated facts.

Is there negative marking in NISM-Series-XXI-A?

Yes. The revised exam has negative marking of 10% of the marks assigned to a question. Avoid blind guessing, and answer when you can remove at least some options.