Introduction to the Securities Market
The two segments
Every securities transaction sits in one of two places. The primary market is where an issuer raises fresh capital - IPO, FPO, rights issue, preferential allotment, debt issuance. Money paid here goes to the company. The secondary market is where already-issued securities change hands on exchanges; no fresh money reaches the issuer, but liquidity and price discovery are created.
Markets are also split by tenor: the money market (instruments of one year or less - T-bills, commercial paper, certificates of deposit, call money, repo) is regulated by RBI; the capital market (equity and long-term debt) is regulated by SEBI.
The cast
Issuers, investors, intermediaries (merchant bankers, stock brokers, depository participants, registrar and transfer agents, custodians, AMCs, distributors) and market infrastructure - exchanges (NSE, BSE), depositories (NSDL, CDSL) and clearing corporations. SEBI was constituted in 1988 and given statutory teeth by the SEBI Act, 1992, with a triple mandate: protect investors, develop the market, and regulate it.
Traps that recur in exams
- Regulator mix-ups: RBI = money market, forex, banking; SEBI = securities; IRDAI = insurance; PFRDA = pensions.
- Saying an IPO is a secondary-market transaction (it is not).
- Confusing the depository (which holds securities in demat form) with the depository participant (your interface) or the exchange (a trading venue).
- Treating derivatives or commodity contracts as primary-market capital-raising instruments.
Rule of thumb
Ask one question: does the issuer receive the money? Yes → primary market. No → secondary market.
Worked example: An investor applies for an IPO (primary), is allotted shares, and sells them on NSE after listing (secondary). Only the first leg funded the company.