Skip to content

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

A client, Mrs. Nair, asks about the difference between the primary and secondary markets. Which statement is correct?

In the primary market, securities are newly issued and the proceeds go to the issuer, as in an IPO or follow-on offer. The secondary market lets investors trade existing securities, giving liquidity without the issuer receiving funds.

  1. AFunds from a secondary market purchase go to the issuing company
  2. BIn the primary market, securities are issued for the first time and proceeds reach the issuer, while the secondary market provides liquidity by trading existing securitiesCorrect
  3. CAn IPO is an example of a secondary market transaction
  4. DA follow-on public offer takes place only in the secondary market

Explanation

The primary market is where issuers raise fresh capital, such as an IPO or FPO, and the money reaches the issuer. In the secondary market investors trade existing securities among themselves, so the issuer receives nothing. The other options reverse these roles.

Did you get it right without looking?

One question tells you little. A timed set on Securities Market Segments shows your real accuracy, how long you take and where you lose marks.

Practise Securities Market SegmentsFree diagnostic mock

More Securities Market Segments questions