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

Ms. Kavita Rao wants to understand why a company's shares are first offered to the public through an IPO and then traded on a stock exchange. Which statement correctly describes this arrangement in the Indian capital market?

An IPO is a primary market activity because the company issues new securities and receives the funds. After listing, investors buy and sell those shares among themselves on the stock exchange, which is the secondary market, where the issuer receives no money.

  1. AThe IPO takes place in the primary market, and subsequent trading among investors takes place in the secondary marketCorrect
  2. BBoth the IPO and subsequent trading take place in the primary market
  3. CThe IPO takes place in the secondary market, and later trading takes place in the primary market
  4. DBoth the IPO and subsequent trading take place only in the money market

Explanation

In an IPO the issuer raises fresh funds directly from investors, which is the primary market. Once listed, investors trade shares among themselves on exchanges, which is the secondary market. The other options reverse or misplace these markets.

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