NISM Certifications Securities Markets Foundation and Structure Flashcards

24 sample cards from the Securities Markets Foundation and Structure deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the book building process?

   Book building is a price discovery mechanism where the issuer offers a price band and investors bid within it; the final issue price (cut-off price) is determined based on the demand received at various price levels.

2. What is a price band in book building?

   A price band is the range between a floor price (minimum) and a cap price (maximum) within which investors place bids; the cap price cannot exceed 120% of the floor price.

3. What is the cut-off price in an IPO?

   The cut-off price is the final price at which shares are allotted, determined through the book building process based on aggregate investor demand; retail investors may bid at 'cut-off' to accept whatever final price is set.

4. Differentiate between a fixed price issue and a book built issue.

   In a fixed price issue, the issue price is predetermined and disclosed in the prospectus upfront. In a book built issue, only a price band is given and the final price is discovered through bidding.

5. What are the three main categories of investors in an IPO and their typical reservation?

   Qualified Institutional Buyers (QIBs) — up to 50%; Non-Institutional Investors (NIIs/HNIs) — at least 15%; Retail Individual Investors (RIIs) — at least 35% (for book built issues).

6. What is ASBA?

   ASBA (Application Supported by Blocked Amount) is a process where an applicant's bid amount is blocked in their own bank account and debited only on allotment, instead of being paid upfront to the issuer.

7. What is a red herring prospectus?

   A red herring prospectus is a preliminary offer document filed in a book built issue that contains all details except the final price and number of shares, which are determined after the book building.

8. What is meant by oversubscription of an issue?

   Oversubscription occurs when the number of shares applied for exceeds the number of shares offered; allotment is then done on a proportionate basis or via lottery as per SEBI norms.

9. What is the basis of allotment in an oversubscribed retail category?

   In an oversubscribed retail category, allotment is made through a lottery/computerised draw ensuring each successful applicant gets at least the minimum bid lot, subject to availability.

10. What is the typical T+ settlement cycle for equities in India currently?

    India follows a T+1 rolling settlement cycle for equities, meaning trades are settled one business day after the trade date (with T+0 being phased in optionally).

11. What is the difference between a market order and a limit order?

    A market order executes immediately at the best available current price. A limit order executes only at a specified price or better, and may not execute if the price is not reached.

12. What is a stop-loss order?

    A stop-loss order is a conditional order that gets triggered and converted to a market/limit order once the price reaches a predetermined trigger level, used to limit losses.

13. What is clearing in the settlement process?

    Clearing is the determination of the obligations (what each party owes or is owed) of buyers and sellers — i.e., computing the net funds and securities to be paid or delivered.

14. What is the role of a Clearing Corporation?

    A Clearing Corporation acts as a central counterparty, guaranteeing settlement of trades, managing risk through margins, and ensuring delivery of securities and funds (e.g., NSE Clearing, Indian Clearing Corporation).

15. What is dematerialisation?

    Dematerialisation is the process of converting physical share certificates into electronic (demat) form held in a depository account.

16. What is rematerialisation?

    Rematerialisation is the reverse of dematerialisation — converting electronic holdings in a demat account back into physical share certificates.

17. What is an ISIN?

    ISIN (International Securities Identification Number) is a unique 12-character alphanumeric code that identifies a specific security held in dematerialised form.

18. What is a market index, and what does it represent?

    A market index is a statistical measure that tracks the performance of a group of representative securities, reflecting overall market or sector movement (e.g., it shows whether the market is rising or falling).

19. Name the benchmark indices of the NSE and BSE.

    NSE's benchmark index is the Nifty 50 (50 stocks); BSE's benchmark index is the Sensex (30 stocks).

20. What methodology is used to compute Nifty 50 and Sensex?

    Both use the free-float market capitalisation weighted method, where each constituent's weight is based on its market value of freely tradable shares.

21. What is the purpose of SEBI's Code of Conduct for intermediaries?

    It sets standards of integrity, fairness, diligence, and professionalism, requiring intermediaries to act in clients' interests, avoid conflicts of interest, maintain confidentiality, and comply with regulations.

22. What avenues are available for investor grievance redressal in the securities market?

    Approaching the intermediary directly, escalating to the stock exchange or depository, filing on SEBI's SCORES platform, the SEBI Online Dispute Resolution (ODR/SMART ODR) portal, and arbitration.

23. What is SCORES?

    SCORES (SEBI Complaints Redress System) is SEBI's online platform where investors can lodge complaints against listed companies and registered intermediaries and track their resolution.

24. What is KYC, and why is it required in the securities market?

    KYC (Know Your Customer) is the process of verifying a client's identity and address before onboarding. It is mandated to prevent fraud, money laundering, and to ensure regulatory compliance under PMLA and SEBI rules.

What this deck covers

Securities Markets Foundation and Structure flashcards FAQ