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

Rohit wants to know the difference between the primary market and the secondary market. Which of the following correctly describes a transaction in the primary market?

Applying for shares in an IPO and receiving allotment from the issuing company is a primary market transaction, because new securities are created and sold by the issuer to investors. Trading existing shares between investors on an exchange belongs to the secondary market.

  1. ARohit sells 100 shares of Infosys to another investor through the NSE
  2. BRohit applies for shares in an IPO and they are allotted by the issuing companyCorrect
  3. CRohit buys shares of Tata Motors in the cash segment from a broker
  4. DRohit pledges his shares to a bank to raise a loan

Explanation

The primary market is where securities are issued for the first time by the issuer to investors, such as through an IPO. Trading among investors on exchanges is the secondary market. Pledging is a loan-collateral arrangement, not an issue of securities.

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