Basics of Securities Markets - Structure, Participants and Settlement Mechanics
This domain is the foundation of NISM Series XII: Securities Markets Foundation. It tests how the Indian securities market is structured, who does what, and how a trade flows from issue to settlement - vocabulary you reuse in every later domain.
Two ways to split the market
- Primary vs secondary: in the primary market an issuer sells new securities and receives the money; in the secondary market investors trade those securities with each other and the issuer receives nothing.
- Money vs capital market: money market means tenor up to one year (T-bills, commercial paper, certificates of deposit, call money) and is regulated by RBI; the capital market covers long-term equity and debt and is regulated by SEBI.
- Legal frame: SEBI Act 1992, SCRA 1956, Companies Act 2013, Depositories Act 1996.
Who does what
- Exchanges (BSE, NSE and others) run the trading platform and price discovery; NSE introduced screen-based trading in 1994.
- Clearing corporations (NSE Clearing, ICCL) novate trades and guarantee settlement - not the exchange.
- Depositories - NSDL and CDSL - hold securities electronically; you reach them through a depository participant, usually your broker.
- SEBI registers and supervises brokers, merchant bankers, RTAs, underwriters and investment advisers.
Worked example
An investor bids for 200 shares in an IPO at the cut-off price of ₹450 through ASBA, so ₹90,000 stays blocked in his bank account. On allotment he gets 50 shares: ₹22,500 is debited, the rest is unblocked, and the money goes to the issuer - that is the primary market. He later sells the 50 shares on NSE at ₹520. That ₹26,000 goes to him, not the company; the clearing corporation ensures the buyer pays and he delivers. A Monday sale settles on Tuesday under T+1.
Traps that cost marks
- Saying secondary-market sale proceeds reach the issuer.
- Sending money-market or government-securities questions to SEBI - that is RBI's turf.
- Naming the exchange as settlement guarantor.
- Saying the broker holds your shares; the depository does.
- Quoting T+2; the T+1 cycle has covered all listed stocks since January 2023.