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NISM Series XXV-B study materials
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NISM Series XXV-B practice questions

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Question 1Introduction to the Indian securities markets and the regulatory framework

The Securities and Exchange Board of India became a statutory body under which legislation?

  1. The SCRA, 1956
  2. The Depositories Act, 1996
  3. The Companies Act, 2013
  4. The SEBI Act, 1992 Correct answer.

Explanation

SEBI was constituted in 1988 as a non-statutory body and was given statutory status by the SEBI Act, 1992. That Act defines its powers to regulate the securities market and protect investors.

Question 2Introduction to the Indian securities markets and the regulatory framework

Which Act provides the legal framework for regulation of contracts in securities and recognition of stock exchanges?

  1. The Securities and Exchange Board of India Act, 1992
  2. The Securities Contracts (Regulation) Act, 1956 Correct answer.
  3. The Companies Act, 2013
  4. The Depositories Act, 1996

Explanation

The Securities Contracts (Regulation) Act, 1956 empowers the authorities to recognise and regulate stock exchanges and to regulate contracts in securities. It is a foundational statute for the secondary market.

Question 3Introduction to the Indian securities markets and the regulatory framework

Which Act governs dematerialisation of securities and the operation of depositories in India?

  1. Depositories Act, 1996 Correct answer.
  2. SEBI Act, 1992
  3. Indian Contract Act, 1872
  4. Companies Act, 2013

Explanation

The Depositories Act, 1996 provides for electronic form holding of securities and the establishment of depositories. It enables dematerialisation and transfer of securities without physical certificates.

Question 4Introduction to the Indian securities markets and the regulatory framework

Fresh capital is raised by an issuer from investors in which market?

  1. Primary market Correct answer.
  2. Money market
  3. Secondary market
  4. Forex market

Explanation

The primary market is where new securities are issued and sold by the issuer to investors, raising fresh capital. The secondary market involves trading of already-issued securities among investors.

Question 5Introduction to the Indian securities markets and the regulatory framework

Which authority grants recognition to a stock exchange in India under the securities law framework?

  1. SEBI Correct answer.
  2. IRDAI
  3. RBI
  4. Ministry of Corporate Affairs

Explanation

SEBI is the securities market regulator and has powers relating to recognition and regulation of stock exchanges. RBI regulates banking and monetary matters, not stock exchange recognition.

Question 6Introduction to the Indian securities markets and the regulatory framework

An investor who wants to hold securities in electronic form opens a demat account with which entity?

  1. A recognised stock exchange
  2. A scheduled commercial bank
  3. A registered merchant banker
  4. A depository participant Correct answer.

Explanation

A depository participant acts as the investor-facing agent of a depository and opens and maintains demat accounts. A bank may act as a depository participant only if it is registered for that activity.

Question 7Introduction to the Indian securities markets and the regulatory framework

SEBI's online investor complaint redress system is called:

  1. NACH
  2. BHIM UPI
  3. e-ASBA
  4. SCORES Correct answer.

Explanation

SCORES stands for SEBI Complaints Redress System, an online platform for investors to lodge and track complaints against listed companies and intermediaries. It is part of SEBI's investor protection framework.

Question 8Introduction to the Indian securities markets and the regulatory framework

Appeals against orders passed by SEBI under the SEBI Act lie to which forum?

  1. The Reserve Bank of India's Governor
  2. Securities Appellate Tribunal Correct answer.
  3. The Supreme Court of India directly
  4. The Central Government in the Ministry of Finance

Explanation

The SEBI Act provides for appeals against certain SEBI orders to the Securities Appellate Tribunal. An appeal may later lie to the Supreme Court, but the first statutory appellate forum is SAT.

Question 9Introduction to the Indian securities markets and the regulatory framework

Which regulator is primarily responsible for regulating the corporate bond market in India?

  1. IRDAI
  2. Ministry of Corporate Affairs
  3. RBI
  4. SEBI Correct answer.

Explanation

SEBI regulates the securities market, including issuance, listing and trading of corporate bonds. RBI's direct market jurisdiction covers government securities, money market instruments and foreign exchange.

Question 10Introduction to the Indian securities markets and the regulatory framework

Which of the following is a money market instrument regulated primarily by the RBI?

  1. Preference shares
  2. Equity shares
  3. Treasury bills Correct answer.
  4. Corporate bonds

Explanation

Treasury bills are short-term government securities and form part of the money market, which RBI regulates. Equity shares, preference shares and corporate bonds are securities market instruments regulated under SEBI's framework.

Question 11Introduction to the Indian securities markets and the regulatory framework

A company planning an initial public offer usually appoints which intermediary to manage the issue and ensure compliance with SEBI regulations?

  1. Merchant banker Correct answer.
  2. Depository participant
  3. Stock broker
  4. Portfolio manager

Explanation

A merchant banker manages public issues, conducts due diligence and coordinates compliance with SEBI issue regulations. Stock brokers execute trades, while depository participants service demat accounts.

Question 12Introduction to the Indian securities markets and the regulatory framework

Which intermediary is mainly responsible for processing allotment and refunds in a public issue?

  1. Registrar Correct answer.
  2. Debenture trustee
  3. Credit rating agency
  4. Underwriter

Explanation

The registrar to an issue handles applications, allotment, refunds and related records for a public issue. The underwriter assures subscription, while the trustee and rating agency have different roles.

Question 13Introduction to the Indian securities markets and the regulatory framework

In the secondary market, which entity provides clearing and settlement services and may guarantee settlement?

  1. The merchant banking division
  2. The depository participant
  3. Clearing corporation Correct answer.
  4. The recognised stock exchange

Explanation

A clearing corporation determines obligations and ensures settlement, and may provide a settlement guarantee. The exchange provides the trading platform, while depositories and DPs handle electronic securities holdings.

Question 14Introduction to the Indian securities markets and the regulatory framework

A person who provides investment advice about securities for consideration must generally be registered with SEBI as:

  1. A merchant banker
  2. A portfolio manager
  3. A credit rating agency
  4. An investment adviser Correct answer.

Explanation

SEBI's Investment Adviser Regulations require persons providing investment advice for consideration to register as investment advisers. Portfolio managers manage client portfolios under a separate regulatory framework.

Question 15Introduction to the Indian securities markets and the regulatory framework

Foreign portfolio investors are primarily regulated in India by which authority?

  1. Ministry of Finance
  2. IRDAI
  3. RBI
  4. SEBI Correct answer.

Explanation

SEBI administers the foreign portfolio investor framework, including registration and investment conditions. RBI's role in foreign investment is mainly through the foreign exchange and FEMA framework.

Question 16Introduction to the Indian securities markets and the regulatory framework

An investor wants to buy listed shares on a stock exchange. Which registered intermediary must be used for executing the trade?

  1. Portfolio manager
  2. Merchant banker
  3. Stock broker Correct answer.
  4. Depository

Explanation

Trades on a recognised stock exchange are executed through SEBI-registered stock brokers who are members of the exchange. Depositories hold securities, while merchant bankers manage issues.

Question 17Introduction to the Indian securities markets and the regulatory framework

Commodity derivatives trading in India is regulated by which authority?

  1. Ministry of Consumer Affairs
  2. SEBI Correct answer.
  3. Forward Markets Commission
  4. RBI

Explanation

After the Forward Markets Commission was merged with SEBI in 2015, SEBI regulates commodity derivatives markets. RBI regulates monetary and foreign exchange matters, not commodity derivatives.

Question 18Introduction to the Indian securities markets and the regulatory framework

Which statement best describes the roles of a depository and a depository participant?

  1. A depository holds securities; a DP services investors Correct answer.
  2. A DP owns the depository and sets its fees
  3. A depository opens demat accounts directly for retail investors
  4. A DP regulates the depository under SEBI rules

Explanation

A depository holds securities in electronic form at the system level, while depository participants act as its agents and open and service investor demat accounts. Investors interact with the DP rather than directly with the depository for account servicing.

Question 19Introduction to the Indian securities markets and the regulatory framework

In a public issue, ASBA allows an investor to:

  1. Receive shares before the allotment is finalized
  2. Pay the full issue price to the merchant banker in cash
  3. Block funds in the bank account until allotment Correct answer.
  4. Avoid KYC requirements for the public issue

Explanation

ASBA stands for Application Supported by Blocked Amount. The investor's bank blocks the application money, which is debited only after allotment to the extent of shares allotted.

Question 20Introduction to the Indian securities markets and the regulatory framework

Which of the following is a 'security' under Indian securities law?

  1. Debenture Correct answer.
  2. Bank fixed deposit
  3. Gold jewellery
  4. Currency note

Explanation

The securities law definition includes instruments such as shares, bonds, debentures, derivatives and units. Bank deposits, currency and physical gold are not securities under that definition.

Question 21Introduction to the Indian securities markets and the regulatory framework

Under the SEBI Act, an appeal against a SEBI order must ordinarily be filed with the Securities Appellate Tribunal within how many days?

  1. 60 days
  2. 45 days Correct answer.
  3. 90 days
  4. 30 days

Explanation

The SEBI Act prescribes a period of 45 days from the date of the order for filing an appeal before SAT. SAT may entertain a delayed appeal if sufficient cause is shown.

Question 22Introduction to the Indian securities markets and the regulatory framework

A SEBI-registered custodian primarily performs which function?

  1. Manage the issuer's IPO subscription list
  2. Safekeep client securities and process corporate actions Correct answer.
  3. Determine the daily closing price of every listed security
  4. Guarantee settlement of stock exchange trades

Explanation

A custodian safekeeps securities for clients, settles transactions and handles corporate actions and related records. Settlement guarantees are provided by clearing corporations, not custodians.

Question 23Introduction to the Indian securities markets and the regulatory framework

Trading in government securities is primarily regulated by which authority?

  1. IRDAI
  2. SEBI
  3. Ministry of Corporate Affairs
  4. RBI Correct answer.

Explanation

RBI regulates the government securities market as part of its monetary and debt management role. SEBI's securities market regulation focuses mainly on corporate securities and exchange-traded products.

Question 24Introduction to the Indian securities markets and the regulatory framework

A company raises short-term working capital by issuing an instrument with original maturity of 91 days. This transaction belongs primarily to which market?

  1. Money market Correct answer.
  2. Capital market
  3. Derivatives market
  4. Forex market

Explanation

The money market deals in short-term debt instruments, generally with original maturity of one year or less. A 91-day instrument therefore falls in the money market rather than the capital market.

Question 25Introduction to the Indian securities markets and the regulatory framework

Which body has statutory responsibility for regulating the Indian securities market and protecting investors under the SEBI Act?

  1. RBI
  2. SEBI Correct answer.
  3. Ministry of Corporate Affairs
  4. Stock exchanges

Explanation

The SEBI Act establishes SEBI and mandates it to regulate the securities market and protect investor interests. Stock exchanges are regulated entities, while RBI and the Ministry of Corporate Affairs have other statutory mandates.

Question 26Introduction to the Indian securities markets and the regulatory framework

SEBI became a statutory body with powers conferred by an Act of Parliament in which year?

  1. 2000
  2. 1988
  3. 1996
  4. 1992 Correct answer.

Explanation

SEBI was created in 1988 through an administrative resolution of the Government, but it acquired legal teeth only when the SEBI Act, 1992 came into force. The Act defines its powers over stock exchanges, intermediaries and investor protection.

Question 27Introduction to the Indian securities markets and the regulatory framework

The legal framework under which securities can be held and transferred in electronic form in India is provided mainly by:

  1. the Securities Contracts (Regulation) Act, 1956
  2. the Depositories Act, 1996 Correct answer.
  3. the SEBI Act, 1992
  4. the Companies Act, 1956

Explanation

The Depositories Act, 1996 gave statutory recognition to dematerialised securities, made electronic holdings fungible with physical certificates and provided for depositories and participants. It is the base law for holding and transferring securities in electronic form.

Question 28Introduction to the Indian securities markets and the regulatory framework

Which stock exchange traces its origin to 1875 and is the oldest in India?

  1. Calcutta Stock Exchange
  2. Bombay Stock Exchange Correct answer.
  3. Ahmedabad Stock Exchange
  4. National Stock Exchange

Explanation

The Bombay Stock Exchange began in 1875 as an association of share and stock brokers, making it the oldest exchange in the country. The other major exchanges were established later.

Question 29Introduction to the Indian securities markets and the regulatory framework

A company that issues shares to investors for the first time raises capital in:

  1. the money market
  2. the primary market Correct answer.
  3. the secondary market
  4. the derivatives market

Explanation

The primary market is where new securities are issued by an issuer and the proceeds go to the issuer. Subsequent buying and selling of those securities among investors happens in the secondary market.

Question 30Introduction to the Indian securities markets and the regulatory framework

Besides appeals against orders of SEBI, the Securities Appellate Tribunal also hears appeals against orders passed by:

  1. the Reserve Bank of India and the Pension Fund Regulatory and Development Authority
  2. the Reserve Bank of India and IRDAI
  3. only the Reserve Bank of India
  4. IRDAI and the Pension Fund Regulatory and Development Authority Correct answer.

Explanation

The appellate jurisdiction of the Securities Appellate Tribunal covers orders of SEBI as well as those of the insurance regulator and the pension regulator. RBI's regulatory orders follow a separate appellate route and do not go to the Tribunal.

Question 31Introduction to the Indian securities markets and the regulatory framework

Demutualisation of a stock exchange essentially means:

  1. shifting the exchange's trading operations to another city
  2. merging two or more exchanges into a single entity
  3. converting the exchange into a company owned exclusively by its brokers
  4. separating ownership rights from trading rights Correct answer.

Explanation

Demutualisation separates ownership and management of an exchange from the right to trade on it, so that shareholders need not be brokers and brokers need not be shareholders. It is usually accompanied by corporatisation, where the exchange becomes a company limited by shares.

Question 32Introduction to the Indian securities markets and the regulatory framework

In a mutual fund, responsibility for the day-to-day investment decisions of a scheme rests with the:

  1. sponsor
  2. asset management company Correct answer.
  3. registrar and transfer agent
  4. trustee company

Explanation

The asset management company, registered with SEBI, manages the scheme's portfolio and takes investment decisions. The trustees supervise the AMC and ensure that the scheme is run in unit holders' interest.

Question 33Introduction to the Indian securities markets and the regulatory framework

A director of a listed company buys its shares shortly before a price-raising announcement, using information that has not been made public. Such conduct is primarily governed by the:

  1. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
  2. SEBI (Prohibition of Insider Trading) Regulations, 2015 Correct answer.
  3. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
  4. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Explanation

Trading while in possession of unpublished price-sensitive information is prohibited under the insider trading regulations, which also mandate a code of conduct and disclosure of holdings by insiders. The other regulations address takeovers, capital raising and listing conditions respectively.

Question 34Introduction to the Indian securities markets and the regulatory framework

When an acquirer's shareholding crosses the prescribed voting-rights threshold in a listed company, a mandatory open offer to public shareholders arises under the:

  1. SEBI (Buy-back of Securities) Regulations, 2018
  2. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 Correct answer.
  3. SEBI (Prohibition of Insider Trading) Regulations, 2015
  4. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Explanation

The takeover regulations require an acquirer who crosses the specified voting-rights threshold, or gains control, to make an open offer so that public shareholders get an exit opportunity at a fair price. Disclosure of acquisitions is also mandated at various stages.

Question 35Introduction to the Indian securities markets and the regulatory framework

An equity trade is executed on a Monday. Under a T+1 settlement cycle, settlement falls on:

  1. the same day as the trade
  2. the fifth working day after the trade
  3. the third working day after the trade
  4. the next working day Correct answer.

Explanation

T+1 means the trade is settled on the trade date plus one working day, so a Monday trade settles on Tuesday. India moved to a T+1 cycle for equity trades, shortening the earlier T+2 cycle.

Question 36Introduction to the Indian securities markets and the regulatory framework

The Financial Stability and Development Council, which coordinates among India's financial sector regulators, is chaired by the:

  1. Secretary, Department of Economic Affairs
  2. Chairperson of SEBI
  3. Governor of the Reserve Bank of India
  4. Union Finance Minister Correct answer.

Explanation

The Council was set up to strengthen and institutionalise coordination among financial sector regulators and is chaired by the Union Finance Minister. Its sub-committee, which deals with day-to-day macro-prudential issues, is headed by the RBI Governor.

Question 37Introduction to the Indian securities markets and the regulatory framework

IOSCO, of which SEBI is a member, is best described as:

  1. a World Bank programme that funds stock exchanges in developing economies
  2. a committee of central banks that decides policy interest rates
  3. a global forum that sets principles for securities regulation Correct answer.
  4. a rating agency that grades sovereign debt

Explanation

IOSCO is the international organisation of securities regulators, and its Objectives and Principles of Securities Regulation serve as a global benchmark for market regulation. SEBI participates in it and aligns its framework with internationally accepted standards.

Question 38Introduction to the Indian securities markets and the regulatory framework

A listed company is ordinarily required to maintain a minimum public shareholding of at least:

  1. 5% of its paid-up capital
  2. 25% of its paid-up capital Correct answer.
  3. 10% of its paid-up capital
  4. 20% of its paid-up capital

Explanation

The Securities Contracts (Regulation) Rules, 1957 require listed companies to keep at least 25% of their paid-up capital with the public, and SEBI enforces this through its listing regulations. The norm is meant to ensure a minimum free float and dispersed ownership.

Question 39Introduction to the Indian securities markets and the regulatory framework

A listed company proposes to raise funds through a rights issue. Its eligibility, pricing and disclosure obligations for that issue are primarily set out in the:

  1. SEBI (ICDR) Regulations, 2018 Correct answer.
  2. SEBI (LODR) Regulations, 2015
  3. SEBI (SAST) Regulations, 2011
  4. SEBI (PIT) Regulations, 2015

Explanation

The Issue of Capital and Disclosure Requirements Regulations govern public issues, rights issues, bonus issues and preferential allotments, including eligibility conditions and disclosure norms. The other regulations cover takeovers, insider trading and continuous listing obligations.

Question 40Introduction to the Indian securities markets and the regulatory framework

Ongoing obligations such as quarterly financial results, disclosure of material price-sensitive events and board composition norms for a listed company flow chiefly from the:

  1. SEBI (ICDR) Regulations, 2018
  2. SEBI (PIT) Regulations, 2015
  3. SEBI (SAST) Regulations, 2011
  4. SEBI (LODR) Regulations, 2015 Correct answer.

Explanation

The Listing Obligations and Disclosure Requirements Regulations consolidate the continuous and event-based disclosure duties of listed entities, including periodic results and governance standards. The other regulations deal with capital raising, takeovers and insider trading.

Question 41Investment advice and the roles of persons associated with investment advice

Under the SEBI (Investment Advisers) Regulations, 2013, what does 'investment advice' cover?

  1. Assistance in opening a demat account and completing know-your-client formalities
  2. Advice on buying and holding immovable property as an investment
  3. Advice on the tax treatment of salary income and house-rent allowance
  4. Advice on investing in, purchasing, selling or otherwise dealing in securities or investment products, which includes financial planning Correct answer.

Explanation

Investment advice means advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on an investment portfolio containing such products, given in any form for the benefit of the client; it expressly includes financial planning. Ancillary paperwork and advice confined to non-securities assets fall outside the definition.

Question 42Investment advice and the roles of persons associated with investment advice

A market commentator writes a weekly column in a widely read newspaper giving general views on equities. How is this treated under the investment advisory framework?

  1. It becomes investment advice only if the newspaper charges readers a subscription
  2. It is outside the definition of investment advice because it is disseminated through a medium widely available to the public Correct answer.
  3. It becomes investment advice only if the columnist personally holds the shares discussed
  4. It must be registered as investment advice because it concerns securities

Explanation

Investment advice communicated through a newspaper, magazine, or any electronic, broadcasting or telecommunications medium that is widely available to the public is excluded from the definition. The exclusion does not extend to advice given to an individual client through any medium.

Question 43Investment advice and the roles of persons associated with investment advice

In its dealings with a client, an investment adviser occupies which position?

  1. A fiduciary whose client's interest is paramount Correct answer.
  2. An execution-only intermediary that merely places orders for the client
  3. An agent of the product manufacturer whose schemes are recommended
  4. A principal that deals with the client on its own account

Explanation

The regulations require an investment adviser and its employees to act in a fiduciary capacity towards the client, so that the client's interest is paramount. This is why advice must be suitable, conflicts must be disclosed and remuneration must come only from the client.

Question 44Investment advice and the roles of persons associated with investment advice

Who is the 'principal officer' of an investment adviser?

  1. The custodian that safekeeps clients' securities
  2. The individual responsible for the overall management and administration of the adviser's business Correct answer.
  3. The client relationship manager assigned to the largest client
  4. The independent auditor who certifies the adviser's accounts

Explanation

The principal officer is the individual responsible for the overall management and administration of the investment adviser's business. The position carries prescribed qualification and certification requirements because the officer is a person associated with investment advice.

Question 45Investment advice and the roles of persons associated with investment advice

A person wishes to charge clients a fee for advising them on which mutual fund schemes and stocks to buy. Under the regulations, the person must first:

  1. Register with a recognised stock exchange as a trading member and clear trades through it
  2. Publish a fee schedule on its website for the information of clients
  3. Obtain a certificate of registration from SEBI to act as an investment adviser Correct answer.
  4. Obtain only a permanent account number and a service-tax registration

Explanation

No person may act as an investment adviser without a certificate of registration from SEBI. Acting for consideration, in the business of advising on securities or investment products, is the trigger for registration.

Question 46Investment advice and the roles of persons associated with investment advice

Which of the following must hold the certification prescribed for investment advisory activity?

  1. The principal officer and every person associated with investment advice Correct answer.
  2. Only the compliance officer of the advisory firm
  3. Every employee of the firm, including reception and information-technology staff
  4. Only the principal officer of the advisory firm

Explanation

The certification requirement attaches to the individual adviser, the principal officer and all persons associated with investment advice, that is, those involved in advising clients or dealing with them on advisory matters. Purely administrative and support staff fall outside its scope.

Question 47Investment advice and the roles of persons associated with investment advice

A firm sells a comprehensive financial plan that includes specific recommendations on mutual funds, bonds and exchange-traded funds. How is this offering treated?

  1. It requires only an AMFI registration number as a mutual fund distributor
  2. It is permitted only for clients whose net worth exceeds one crore rupees
  3. It is investment advice and requires registration as an investment adviser Correct answer.
  4. It falls outside the advisory framework because it is labelled financial planning

Explanation

Financial planning that carries advice on securities or investment products is expressly within the definition of investment advice, so the firm needs to be registered as an investment adviser. The label attached to the service does not change its character.

Question 48Investment advice and the roles of persons associated with investment advice

At what client base does an investment adviser become obliged to appoint a compliance officer under the SEBI (Investment Advisers) Regulations, 2013?

  1. On reaching 50 or more clients
  2. On reaching 500 or more clients
  3. On reaching 150 or more clients Correct answer.
  4. From the first client onward

Explanation

An investment adviser with 150 or more clients must appoint a compliance officer to monitor regulatory compliance and handle redressal of client grievances. Smaller advisers must still comply with the regulations, but the designated-officer obligation is triggered at that threshold.

Question 49Investment advice and the roles of persons associated with investment advice

A person appointed as principal officer of an investment adviser must satisfy which minimum requirement?

  1. A post-graduate degree in finance or commerce, or a graduate degree with five years' experience in financial services Correct answer.
  2. A bachelor's degree in any discipline with three years' experience in financial services
  3. A doctoral degree in any discipline from a recognised university, without any prescribed certification or experience
  4. A chartered accountancy qualification alone, without the prescribed certification

Explanation

The principal officer must hold a post-graduate degree in finance, economics, business management or commerce, or a graduate degree in any discipline with at least five years' experience in financial services, and must also hold the prescribed certification. Experience alone, or an unrelated professional qualification, does not satisfy the requirement.

Question 50Investment advice and the roles of persons associated with investment advice

For how long must an investment adviser preserve its client agreements, risk profiles, advice records and fee records?

  1. One year
  2. Five years Correct answer.
  3. Three years
  4. Ten years

Explanation

An investment adviser must maintain records of its advisory activity, including client agreements, risk profiles, the advice given and fee records, for at least five years. The records must be made available to SEBI on demand.