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

Mr. Arvind Shah, a new investor, asks his DP why the primary market is different from the secondary market. Which statement is correct?

The primary market is where issuers sell new securities and raise funds directly from investors, such as through an IPO. The secondary market is where existing securities are bought and sold among investors, with no proceeds going to the issuer.

  1. AIn the primary market securities are issued afresh by the issuer to investors, while the secondary market involves trading of already issued securities among investorsCorrect
  2. BIn the primary market investors trade securities among themselves on exchanges, while the secondary market is where issuers raise funds
  3. CThe primary market deals only in debt, while the secondary market deals only in equity
  4. DThe primary market is unregulated, while the secondary market is regulated by SEBI

Explanation

New issues such as IPOs, FPOs and rights issues occur in the primary market, where money flows to the issuer. Secondary market trading transfers existing securities between investors, and the issuer receives no funds. Both markets include equity and debt and both are regulated.

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