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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets

A company offers shares to the public for the first time and, after listing, the shares begin trading on the NSE. Which statement correctly identifies the markets involved?

The IPO is a primary market activity because the company issues new shares and receives funds. Subsequent trading of the listed shares among investors on the exchange is a secondary market activity, where the company receives no proceeds from the trades.

  1. AThe IPO is a secondary market activity and the later trading is a primary market activity
  2. BBoth the IPO and the later trading are primary market activities
  3. CThe IPO is a primary market activity and the later trading is a secondary market activityCorrect
  4. DBoth the IPO and the later trading are secondary market activities

Explanation

An IPO involves fresh issue of securities by the company to raise capital, so it is a primary market activity. Once listed, trading between investors on the exchange is secondary market activity and does not bring money to the company. The first option reverses the two.

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