Markets and Instruments is 4 marks in NISM Series XV — the smallest topic in the syllabus and the quickest to finish. Against a 60% pass mark, 4 marks still matter, and this chapter can be covered properly in an hour.
Primary against secondary
Money reaches the issuer only in the primary market, when securities are first issued. Once listed, trading between investors happens in the secondary market, and the company receives nothing from those trades.
Equity instruments
Equity shares carry ownership, voting rights and a residual claim on profits — residual meaning shareholders are paid after everyone else. Preference shares carry a preferential claim on dividends and on repayment, usually without voting rights.
Debt instruments
Debentures and bonds are borrowings: the holder is a creditor, not an owner, and is paid before shareholders.
The features to know: secured against unsecured, convertible against non-convertible, coupon, maturity, and credit rating. Debenture holders receive interest whether or not the company profits, and rank ahead of shareholders in a winding up.
Government securities — treasury bills at the short end and dated securities at the long end — carry no credit risk and are the benchmark against which other debt is priced.
Depository receipts
An instrument issued in one country against shares held in another.
| Issued in | Underlying | |
|---|---|---|
| IDR | India, in rupees | Shares of a foreign company |
| ADR | United States | Shares of a non-US company |
| GDR | Global markets | Shares of a foreign company |
The IDR is the one most often asked: created by a domestic depository — a custodian of securities registered with SEBI — denominated in rupees and listed on an Indian exchange, with a foreign company's shares as the underlying.
FCCBs — Foreign Currency Convertible Bonds — are a related instrument: debt raised abroad in foreign currency, convertible into equity.
Derivatives, in brief
A derivative takes its value from an underlying. Futures oblige both parties; an option gives one side the right and the other the obligation. Used for hedging, speculation and arbitrage.
An analyst needs to recognise these and understand that leverage magnifies both gains and losses. The payoff mathematics belongs to NISM Series VIII, not here.
Who regulates what
A frequent question, and the split is clean:
- SEBI regulates the securities market — exchanges, intermediaries, issuers and investor protection.
- The RBI regulates the money market and the foreign exchange market, manages the Government's borrowing programme, and is the issuer of currency.
- IRDAI regulates insurance; PFRDA was set up with responsibility for promoting old-age income security.
Questions often present all of the RBI's functions and ask which apply — the answer is usually all of them.
Related concepts that sit here
Speculation is the purchase or sale of an asset in the expectation of a gain from a price change over a short period — distinct from investing, and from arbitrage, which captures a price difference without a directional view.
Loan against securities allows an investor to borrow against a portfolio without selling it.
Study note
An hour, then move on. This is the chapter to finish early so that your remaining time goes to Fundamental Analysis at 29 marks and valuation at 24.
Practise all 21 questions free at markets and instruments, then take a full-length timed mock.