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

Mr. Arvind Shah, a retail investor, says that the primary market and secondary market are the same thing. A DP executive corrects him. Which statement is correct?

The primary market is where issuers sell new securities to investors and raise capital, such as through an IPO. The secondary market is where already issued securities are bought and sold among investors, providing liquidity, typically on stock exchanges.

  1. AIn the primary market, securities are issued afresh by the issuer to investors, while the secondary market is where existing securities are traded among investorsCorrect
  2. BIn the primary market, investors trade existing shares among themselves, while the secondary market is where issuers raise fresh capital
  3. CThe primary market operates only for debt securities, while the secondary market operates only for equity shares
  4. DThe primary market is the stock exchange where daily trading occurs, while the secondary market is the IPO process

Explanation

The primary market deals with new issues, where funds flow to the issuer, as in IPOs and FPOs. The secondary market provides liquidity by letting investors trade already issued securities, usually on exchanges. The other options reverse or distort these roles.

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