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JAIIB Paper 1 • Financial Products & Services
Capital Markets & Stock Exchanges
Where companies raise long-term capital and investors trade it. Covers Primary vs Secondary Market, Stock Exchanges in India, secondary-market instruments, SEBI norms for corporate debt securities, common market terms, types of capital issues, eligibility norms, primary market intermediaries, ASBA and QIP — with 50 exam-style MCQs with hidden answers.
📅 Updated: September 2026 • 32 min read
📊 At a Glance
Basis
Primary Market
Secondary Market
What happens
New securities issued for the first time
Already-issued securities traded between investors
Who receives funds
The issuing company
The selling investor (not the company)
Example
IPO, FPO, Rights Issue
Buying/selling shares on BSE/NSE
1 Primary Market vs Secondary Market
The Primary Market is where companies issue new securities directly to investors to raise fresh capital (e.g., an IPO). The Secondary Market is where those already-issued securities are subsequently bought and sold among investors — through stock exchanges — with no new capital flowing to the company; only ownership changes hands.
JAIIB tip: A simple test: "Does the company receive the money?" — Yes → Primary Market. No (it's investor-to-investor) → Secondary Market.
2 Stock Exchanges in India
🏛️
BSE (1875)
Asia's oldest stock exchange; benchmark index is the Sensex (30 stocks).
💻
NSE (1992)
Pioneered electronic screen-based trading in India; benchmark index is the Nifty 50.
🌾
MCX / NCDEX
Dedicated commodity derivatives exchanges.
🏢
Metropolitan Stock Exchange (MSE)
A smaller, SEBI-recognised equity/currency derivatives exchange.
JAIIB tip: All Indian stock exchanges are regulated by SEBI under the Securities Contracts (Regulation) Act, 1956.
3 Instruments Traded in the Secondary Market
📈
Equity Shares
Ownership stake, variable dividend, price fluctuates with company performance.
⭐
Preference Shares
Fixed dividend priority over equity, generally no voting rights.
📜
Debentures / Bonds
Debt instruments, fixed/floating coupon, no ownership.
📊
ETFs / Mutual Fund Units
Pooled investment vehicles, exchange-traded or otherwise.
🎲
Derivatives (F&O)
Futures and Options on stocks/indices (covered in our Derivatives guide).
4 SEBI Regulatory Requirements for Corporate Debt Securities
Issuance/listing governed by SEBI (Issue and Listing of Non-Convertible Securities) Regulations — covering both public issues and private placements of corporate bonds/debentures.
Mandatory credit rating from a SEBI-registered Credit Rating Agency.
Mandatory appointment of a Debenture Trustee to safeguard investor interests.
Private placements above a specified size must be executed through the Electronic Book Provider (EBP) platform for pricing transparency.
Free additional shares to existing shareholders, capitalising reserves (no fresh funds raised).
💡
Memory Trick: "I Follow Rules, Please Quickly"
IPO, FPO, Rights, Preferential, QIP — five core ways a company can issue capital.
7 Eligibility Norms for Capital Issues
Under SEBI's ICDR (Issue of Capital and Disclosure Requirements) Regulations, a company seeking a main-board IPO must generally demonstrate:
A minimum track record of net tangible assets and profitability over specified preceding years, OR
If the profitability track record isn't met, an alternative route requiring at least 75% of the issue to be allotted to Qualified Institutional Buyers (QIBs) — institutional due diligence substituting for a mandatory track record.
Minimum promoters' contribution and a specified lock-in period on promoter shareholding.
Compliance with Minimum Public Shareholding (MPS) norms — typically 25% public float, to be achieved within a prescribed post-listing timeframe.
8 Intermediaries in a Primary Market Issue
🏦
Merchant Banker / BRLM
Book Running Lead Manager — structures, prices and manages the entire issue process.
📋
Registrar to the Issue
Handles applications, allotment and refund/credit processing.
🛡️
Underwriters
Commit to subscribing to any unsubscribed portion of the issue, for a fee.
Mandatory for debt issues, protecting debenture-holder interests.
⭐
Credit Rating Agency
Mandatory for debt issues; rates the instrument's credit quality.
9 ASBA
🔒
Applications Supported by Blocked Amount
ASBA is a mechanism where an investor's application money for a public issue is blocked (not debited) in their own bank account, and only actually debited upon allotment — for the amount of shares actually allotted; the balance is unblocked automatically.
Why ASBA Matters
The investor continues to earn interest on the blocked amount until allotment (unlike the old system, where money was debited upfront and refunded later, often with delay).
Eliminates refund delays/hassles for unsuccessful or partially successful applicants.
Mandatory for all categories of investors applying in public issues in India today.
10 QIP
🏦
Qualified Institutions Placement
A QIP is a fast-track fundraising mechanism, introduced by SEBI in 2006, allowing an already-listed company to raise capital by issuing securities exclusively to Qualified Institutional Buyers (QIBs) — mutual funds, banks, insurers, FPIs, etc. — without the lengthy prospectus/regulatory process of a full public issue.
Why QIP Was Introduced
Before QIP, listed Indian companies often raised overseas capital via ADRs/GDRs (American/Global Depository Receipts) to avoid India's slower domestic issuance process. QIP gave companies a faster, domestic-currency alternative, reducing unnecessary reliance on overseas capital-raising routes and keeping fundraising within the Indian regulatory/market ecosystem.
JAIIB tip: QIP is available only to listed companies (it raises further capital, like an FPO, but restricted to institutional buyers) — an unlisted company cannot use QIP.
✓ Key Takeaways
Primary Market = new securities, funds to the company; Secondary Market = trading existing securities, no new funds to the company.
Corporate debt issuance is governed by SEBI's NCS Regulations — mandatory rating, debenture trustee, and EBP platform for large private placements.
Five key capital-issue types: IPO, FPO, Rights, Preferential, QIP (plus Bonus Issues, which raise no fresh funds).
SEBI ICDR eligibility runs on a profitability track record OR 75%-QIB alternative route, plus MPS and promoter lock-in norms.
ASBA blocks (doesn't debit) application money until allotment; QIP (2006) lets listed companies raise capital fast from QIBs only, reducing reliance on ADR/GDR routes.
📝 Top 50 JAIIB-Style MCQs on Capital Markets & Stock Exchanges
Test your understanding with these 50 practice MCQs, closely modelled on the JAIIB (IE & IFS) exam pattern. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.
🔄 Primary vs Secondary Market
1 In the Primary Market, the funds raised go to:
A. The selling investor
B. The issuing company
C. The stock exchange
D. RBI
E. SEBI
Answer: B. Primary market proceeds go to the issuing company.
2 Buying an already-listed company's shares on NSE is an example of a transaction in the:
A. Primary Market
B. Secondary Market
C. Money Market
D. Insurance Market
E. Reinsurance Market
Answer: B. Trading existing listed shares is a secondary market transaction.
🏛️ Stock Exchanges in India
3 BSE's benchmark index is the:
A. Nifty 50
B. Sensex
C. Dow Jones
D. FTSE 100
E. Nasdaq
Answer: B. BSE's index is the Sensex.
4 NSE's benchmark index is the:
A. Sensex
B. Nifty 50
C. BSE 500
D. Hang Seng
E. CAC 40
Answer: B. NSE's index is the Nifty 50.
5 All stock exchanges in India are ultimately regulated by:
A. RBI
B. SEBI
C. IRDAI
D. PFRDA
E. NABARD
Answer: B. SEBI regulates all stock exchanges.
6 MCX and NCDEX are exchanges dedicated primarily to:
A. Equity shares
B. Commodity derivatives
C. Government bonds only
D. Insurance products
E. Foreign currency notes
Answer: B. MCX/NCDEX focus on commodity derivatives.
📊 Secondary Market Instruments
7 Preference shares, compared to equity shares, generally offer:
A. Higher voting rights and variable dividends
B. Fixed dividend priority with generally no voting rights
C. No dividend rights whatsoever
D. Guaranteed capital appreciation
E. Identical rights to equity shares
Answer: B. Preference shares get fixed dividend priority, usually without voting rights.
8 A debenture is fundamentally a:
A. Debt instrument
B. Ownership stake in the company
C. Insurance policy
D. Government subsidy
E. Currency note
Answer: A. A debenture is a debt instrument.
📜 SEBI Norms for Corporate Debt
9 Corporate debt securities must carry a mandatory:
A. Government guarantee
B. Credit rating from a SEBI-registered Credit Rating Agency
C. RBI approval for every issue
D. Insurance policy
E. Fixed 10% coupon by law
Answer: B. A mandatory credit rating is required.
10 The party appointed to safeguard debenture-holder interests in a corporate bond issue is the:
A. Merchant Banker
B. Debenture Trustee
C. Registrar to the Issue
D. Underwriter
E. Stock exchange
Answer: B. A Debenture Trustee protects debenture-holder interests.
11 Large private placements of corporate debt securities must be executed through the:
A. TREPS platform
B. Electronic Book Provider (EBP) platform
C. UPI
D. NDS-OM
E. RTGS
Answer: B. Large private debt placements go through the EBP platform.
📖 Capital Market Terms
12 Market Capitalisation is calculated as:
A. Share price ÷ total shares
B. Share price × total outstanding shares
C. Total company debt
D. Total company assets
E. Annual dividend paid
Answer: B. Market cap = price × outstanding shares.
13 "Free Float" refers to shares that are:
A. Locked in permanently
B. Readily available for public trading, excluding promoter/locked-in holdings
C. Only held by the government
D. Never traded
E. Issued free of cost to all citizens
Answer: B. Free float is the publicly tradable portion of shares.
14 A "Circuit Breaker" in stock markets refers to:
A. A permanent trading ban
B. An automatic trading halt when price moves beyond a specified % limit
C. A type of dividend
D. A bond coupon reset mechanism
E. An insurance claim process
Answer: B. A circuit breaker halts trading after large price moves.
15 "Book Building" refers to:
A. Maintaining accounting ledgers only
B. A price discovery process where investors bid within a specified price band
C. Printing physical share certificates
D. A type of insurance underwriting
E. A fixed, non-negotiable pricing method
Answer: B. Book building is a price-band-based price discovery process.
🚀 Types of Capital Issues
16 A company's first-ever public share issue is called a(n):
A. FPO
B. IPO
C. QIP
D. Rights Issue
E. Bonus Issue
Answer: B. IPO = Initial Public Offer.
17 An already-listed company issuing additional shares to the public is making a(n):
A. IPO
B. FPO
C. Private placement only
D. Reinsurance
E. Insurance policy
Answer: B. FPO = Follow-on Public Offer.
18 A Rights Issue is offered:
A. To the general public only
B. Proportionately to existing shareholders
C. Only to foreign investors
D. Only to employees
E. Only to the government
Answer: B. Rights issues go proportionately to existing shareholders.
19 Shares allotted to a select group of identified investors, not the general public, is called:
A. An IPO
B. A Preferential Allotment
C. A Bonus Issue
D. A Rights Issue
E. A dividend payment
Answer: B. This describes a Preferential Allotment.
20 A Bonus Issue involves:
A. Raising fresh capital from new investors
B. Issuing free additional shares to existing shareholders by capitalising reserves, with no fresh funds raised
C. Selling shares to foreign institutional investors only
D. A mandatory annual dividend
E. A rights issue at a premium
Answer: B. Bonus shares are free, capitalising reserves — no fresh funds raised.
✅ Eligibility Norms
21 Under SEBI ICDR, a company failing the profitability track-record test for an IPO may still list if:
A. At least 75% of the issue is allotted to Qualified Institutional Buyers
B. It pays a special fee to SEBI to waive all requirements
C. It obtains a bank guarantee for the entire issue
D. It is government-owned
E. No alternative route exists
Answer: A. The 75%-QIB alternative route substitutes for the track-record test.
22 Minimum Public Shareholding (MPS) norms in India generally require listed companies to maintain public float of at least:
A. 5%
B. 10%
C. 25%
D. 51%
E. 100%
Answer: C. MPS norms typically require at least 25% public float.
23 Promoter shareholding in an IPO is typically subject to a:
A. No restriction at all
B. Mandatory lock-in period
C. Immediate sale requirement
D. Ban on holding any shares
E. Compulsory transfer to the government
Answer: B. Promoter shares are subject to a lock-in period.
🧑💼 Primary Market Intermediaries
24 The intermediary who structures, prices and manages a public issue is the:
A. Registrar to the Issue
B. Merchant Banker / Book Running Lead Manager (BRLM)
C. Debenture Trustee
D. Credit Rating Agency
E. Stock exchange
Answer: B. The Merchant Banker/BRLM manages the issue.
25 The intermediary handling applications, allotment and refunds in an issue is the:
A. Underwriter
B. Registrar to the Issue
C. Merchant Banker
D. Debenture Trustee
E. Credit Rating Agency
Answer: B. The Registrar handles applications/allotment/refunds.
26 An Underwriter's role in a public issue is to:
A. Guarantee subscription of any unsubscribed portion, for a fee
B. Set the repo rate
C. Print physical certificates only
D. Regulate the stock exchange
E. Collect income tax
Answer: A. Underwriters commit to cover any shortfall in subscription.
🔒 ASBA
27 ASBA stands for:
A. Applications Supported by Blocked Amount
B. Automatic Stock Bidding Application
C. Approved Securities Banking Account
D. Asset Sale and Buyback Agreement
E. Application for Secured Bank Advance
Answer: A. ASBA = Applications Supported by Blocked Amount.
28 Under ASBA, application money in the investor's bank account is:
A. Immediately debited in full, regardless of allotment
B. Blocked, and debited only to the extent of actual allotment
C. Transferred to a foreign account
D. Never touched at all, even after allotment
E. Converted into gold automatically
Answer: B. ASBA blocks funds, debiting only the allotted amount.
29 A key investor benefit of ASBA is that the blocked amount:
A. Earns no interest and is unavailable
B. Continues to earn interest until allotment
C. Is immediately lost if not allotted
D. Must be paid in cash physically
E. Is taxed at a higher rate
Answer: B. Blocked ASBA funds continue earning interest until allotment.
30 Is ASBA mandatory for public issue applications in India?
A. No, it is entirely optional
B. Yes, it is mandatory for all investor categories
C. Only for foreign investors
D. Only for promoters
E. Only for bonus issues
Answer: B. ASBA is mandatory for all public issue applications.
🏦 QIP
31 QIP stands for:
A. Qualified Institutions Placement
B. Quick Investment Programme
C. Quarterly Income Plan
D. Quoted Issue Price
E. Quantitative Investment Policy
Answer: A. QIP = Qualified Institutions Placement.
32 A QIP allows a listed company to raise capital by issuing securities to:
A. Retail investors only
B. Qualified Institutional Buyers (QIBs) only
C. Foreign governments only
D. The company's own employees only
E. The public through a full prospectus process
Answer: B. QIPs are restricted to QIBs.
33 SEBI introduced the QIP mechanism in:
A. 1992
B. 1999
C. 2006
D. 2015
E. 2021
Answer: C. QIP was introduced in 2006.
34 A key rationale for introducing QIP was to:
A. Reduce listed companies' reliance on overseas ADR/GDR fundraising routes
B. Ban all foreign investment
C. Eliminate the stock exchange entirely
D. Replace IPOs completely
E. Abolish credit ratings
Answer: A. QIP reduced reliance on ADR/GDR routes by offering a fast domestic alternative.
35 Can an unlisted company raise funds through a QIP?
A. Yes, any company can use QIP
B. No, QIP is available only to already-listed companies
C. Only government companies can use QIP
D. Only foreign companies can use QIP
E. QIP is only for debt issuance
Answer: B. QIP is restricted to already-listed companies.
🧩 Mixed / Comprehensive
36 Which of the following capital issue types is fastest for a listed company to execute, given it bypasses the full public-issue process?
A. IPO
B. QIP
C. A full retail public offer
D. A rights issue with SEBI's full prospectus process
E. None; all are equally slow
Answer: B. QIP is the fastest route, given its institutional-only, light-process design.
37 Which of the following is an accurate distinction between an FPO and a QIP?
A. FPO is open to the public; QIP is restricted to QIBs
B. QIP is open to retail investors; FPO is restricted to institutions
C. There is no difference between them
D. FPO is only for unlisted companies
E. QIP requires a full retail prospectus
Answer: A. FPO is a public offer; QIP is institution-only.
38 Which intermediary's involvement is specifically mandatory for DEBT (not equity) issues?
A. Debenture Trustee
B. Registrar to the Issue (equity-only)
C. Underwriter (equity-only)
D. Merchant Banker (equity-only)
E. None are mandatory for debt
Answer: A. A Debenture Trustee is specifically mandatory for debt issues.
39 A company issuing shares at a discount specifically to its own existing shareholders, in proportion to their current holding, is conducting a:
A. QIP
B. Rights Issue
C. IPO
D. Preferential Allotment to outsiders
E. Bonus Issue
Answer: B. This describes a Rights Issue.
40 Which of the following would NOT typically be classified as a "Qualified Institutional Buyer (QIB)"?
A. A mutual fund
B. A scheduled commercial bank
C. An insurance company
D. A retail individual investor applying for ₹15,000 worth of shares
E. A Foreign Portfolio Investor
Answer: D. A small retail investor is not a QIB.
41 Which of the following best explains why ASBA replaced the older system of upfront debit-and-refund?
A. It eliminates investor interest earnings entirely
B. It avoids refund delays and lets investors keep earning interest until allotment
C. It makes applications slower and more expensive
D. It removes the need for a bank account
E. It applies only to bonus issues
Answer: B. ASBA avoids refund delays and preserves investor interest earnings.
42 Which of the following is TRUE about a Bonus Issue's effect on a company's total funds raised?
A. It raises significant fresh capital from new investors
B. It raises no fresh capital — it merely capitalises existing reserves into more shares
C. It is identical to an IPO
D. It requires QIB participation
E. It is a form of debt issuance
Answer: B. A bonus issue capitalises reserves; no fresh capital is raised.
43 Which of the following best distinguishes a "Green Shoe Option" from a standard share allotment?
A. It is an over-allotment option used to help stabilise the post-listing price
B. It guarantees a fixed profit to all investors
C. It is a type of insurance product
D. It applies only to debt issues
E. It eliminates the need for a Registrar
Answer: A. A Green Shoe Option is an over-allotment/price-stabilisation tool.
44 Which of the following market participants would most likely conduct due diligence that substitutes for a strict profitability track record under SEBI's alternative IPO route?
A. Retail investors
B. Qualified Institutional Buyers
C. Individual promoters
D. The company's own employees
E. Foreign tourists
Answer: B. QIB due diligence substitutes for the profitability track-record test.
45 A company that raises money via ADR/GDR is essentially:
A. Raising capital from domestic retail investors only
B. Raising capital from overseas investors through depository receipts
C. Issuing a Bonus Issue
D. Conducting a Rights Issue domestically
E. Using the ASBA mechanism
Answer: B. ADR/GDR raise capital from overseas investors via depository receipts.
46 Which of these correctly ranks entities by the breadth of investors they can typically reach in a single issue, broadest to narrowest?
A. IPO (broadest, retail+institutional) → Rights Issue (existing shareholders) → QIP (QIBs only, narrowest)
B. QIP (broadest) → IPO → Rights Issue (narrowest)
C. Rights Issue (broadest) → QIP → IPO (narrowest)
D. All three reach identical investor bases
E. None of the above
Answer: A. IPO is broadest; QIP is narrowest (QIB-only).
47 Which of the following is a plausible reason a company might prefer a Preferential Allotment over a public issue?
A. To quickly bring in a specific strategic/identified investor without a lengthy public process
B. Because public issues are illegal in India
C. Because preferential allotments require no SEBI compliance at all
D. Because it eliminates the need for any pricing norms
E. Because it guarantees a higher share price permanently
Answer: A. Preferential allotments let companies quickly bring in identified strategic investors.
48 Which of the following best reflects the overall regulatory intent behind ASBA, QIP, and MPS norms together?
A. To slow down capital markets deliberately
B. To make capital raising more efficient, investor-friendly and transparent, while maintaining a healthy public float
C. To eliminate all retail participation
D. To ban foreign investment entirely
E. To remove SEBI's oversight role
Answer: B. These reforms together aim for efficient, transparent, investor-friendly capital markets.
49 Which of the following would be classified under the Primary Market?
A. An investor buying shares from another investor on NSE
B. A company conducting its IPO
C. Trading a mutual fund unit on the secondary market
D. Buying an already-issued bond from another investor
E. Trading derivatives on an existing stock
Answer: B. An IPO is a Primary Market transaction.
50 Overall, which statement best summarises the capital market ecosystem covered in this guide?
A. A tightly regulated system spanning primary issuance (IPO/FPO/Rights/QIP), intermediaries (merchant bankers, registrars, trustees), investor-protection mechanisms (ASBA, eligibility norms) and active secondary-market trading on exchanges
B. An entirely informal, unregulated system
C. A system limited exclusively to government securities
D. A system with no role for SEBI
E. A system where companies never receive any funds
Answer: A. This correctly captures the full capital-market ecosystem.
Disclaimer: This article is prepared for educational and exam-preparation purposes only, summarising India's capital market structures as of September 2026. Candidates should cross-check the latest official IIBF syllabus and SEBI's current regulations before the exam.