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

Mr. Arjun Mehta says that the secondary market in India is where companies raise fresh capital directly from investors. Which statement correctly corrects him?

The secondary market is where already issued securities are bought and sold among investors, giving liquidity. The issuing company does not receive proceeds from these trades, because fresh capital is raised only in the primary market through public issues or private placements.

  1. ASecondary market trades existing securities between investors, and the issuing company does not receive the sale proceedsCorrect
  2. BSecondary market is where only unlisted companies raise fresh capital through private placement
  3. CSecondary market sales give proceeds directly to the issuing company
  4. DSecondary market deals only in government securities issued by RBI

Explanation

In the secondary market, previously issued securities change hands between investors, providing liquidity. The issuer gets no proceeds from these trades; fresh capital is raised in the primary market. Other options misstate the nature of the market.

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