Primary Markets carries 20 marks in NISM Series XII — one of four chapters at that weight. It is the chapter about how securities come into existence and money reaches the issuer.
Primary against secondary
The distinction is the first thing tested and the easiest to state:
- Primary market — securities are issued for the first time and the money goes to the issuer.
- Secondary market — those securities then change hands between investors, and the company receives nothing.
The kinds of issue
- IPO — an unlisted company's first offer of shares to the public.
- FPO — a further offer by a company already listed.
- Rights issue — offered to existing shareholders in proportion to their holding, usually below market price, so they can avoid dilution.
- Private placement — offered to a selected group of identified investors rather than the public, with the number of persons approached restricted by law.
- Offer for sale — existing shareholders sell down; the company receives nothing, unlike a fresh issue.
Fixed price against book building
In a fixed price issue the price is stated upfront in the prospectus. A minimum offer to the public is prescribed so that enough shares are in public hands for a liquid market once they list.
In book building the issuer states a price band and investors bid within it. The final price is discovered from the demand actually received.
Retail individual investors may bid "at cut-off price" — agreeing to accept whatever price is finally discovered. It maximises the chance of allotment without having to judge the right level, and the facility is retail-only.
Anchor investors are qualified institutional buyers allotted shares a day before the issue opens, at a price within the band and subject to a lock-in. Their participation signals institutional confidence to other bidders.
Practise all 55 Primary Markets questions free on ScoreSetu.
The prospectus
The disclosure document on which an investor decides: the business, the financials, the objects of the issue (what the money will be used for), and the risk factors.
The red herring prospectus carries the full disclosures but omits the final price and issue size, since those emerge from the bidding — hence the name.
Risk factors exist so that an investor can price the risk. Disclosure neither eliminates the risk nor amounts to a recommendation against investing.
ASBA
Application Supported by Blocked Amount. The money stays blocked in the applicant's own bank account and is debited only to the extent of shares actually allotted.
Two consequences the exam likes:
- The applicant keeps earning interest on the blocked amount.
- No refund is needed for an unallotted amount — the block is simply released, because nothing ever moved.
Allotment and listing
The registrar to the issue handles the mechanics: receiving and validating applications, finalising the basis of allotment in consultation with the exchange, crediting shares and processing refunds.
Where the retail portion is oversubscribed, allotment is made transparently — typically by lot on the minimum bid lot — so small applicants are treated even-handedly rather than by size or by who applied first.
Listing admits the securities to trading and brings continuing obligations: periodic financial disclosure, prompt announcement of price sensitive information, and compliance with the listing regulations. Minimum public shareholding requirements keep enough stock in public hands for genuine price discovery.
Exam-day note
NISM XII has no negative marking, so attempt every question. A blind guess on a four-option question is worth an expected 0.25 marks; a blank is worth exactly zero.
Practise Primary Markets free, then take a full-length mock scored to the real 60% pass mark.