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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market

A retail investor, Arvind Nair, asks why a company that has already completed its IPO still cares about the price of its shares on the stock exchange. Which role of the secondary market best explains this?

The secondary market gives investors liquidity and continuous price discovery. Because investors can exit easily and see fair values, they are more willing to subscribe to future issues, which makes later fund-raising easier for the company. The company itself does not earn from secondary trades.

  1. AIt provides liquidity and price discovery, making future fund-raising easier for the companyCorrect
  2. BIt ensures the company receives a share of every trade value
  3. CIt removes the need for the company to disclose results
  4. DIt guarantees a fixed return to shareholders

Explanation

The secondary market gives investors an exit route (liquidity) and continuous price discovery. This supports investor confidence and helps the company raise funds later. The company does not receive money from secondary trades, is not exempt from disclosures, and returns are never guaranteed.

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