Ramesh Singh Test: Security Market In India - 1 - UPSC MCQ

- Statement 1 is correct. The primary market is indeed where securities are traded directly between the issuer (capital raiser) and the investor (instrument purchaser).

- Statement 2 is incorrect. The Bombay Stock Exchange (BSE) was not the first fully computerized stock exchange in India. That distinction belongs to the Over the Counter Exchange of India Ltd (OTCEI), which was set up to address issues like lack of transparency and delays in settlements prevalent in older stock exchanges.

- Statement 3 is correct. The Over the Counter Exchange of India Ltd (OTCEI) was promoted by UTI, ICICI, and SBI Cap among others to overcome issues like lack of transparency and delays in settlements.

Therefore, the correct answer is Option C.

- Statement 1: Correct. The BSESME and Emerge platforms are indeed dedicated trading platforms for SMEs in India. The BSESME is the SME platform of the Bombay Stock Exchange (BSE), and Emerge is the SME platform of the National Stock Exchange (NSE). These platforms were launched on March 13, 2012.

- Statement 2: Incorrect. The National Spot Exchange Ltd. (NSEL) was actually set up in 2008, not in 2010. It was established to facilitate commodity spot trading, but the year mentioned in the statement is incorrect.

- Statement 3: Correct. The Security and Exchange Board of India (SEBI) was established under the Security and Exchange Board of India Act, 1992. SEBI is the regulator for the securities market in India and functions with the objective of protecting investor interests and promoting the development of the securities market.

Thus, the correct statements are 1 and 3 only. Therefore, the correct answer is Option B.

The correct answer is Option C: Spread. Spread refers to the variance between the buying and selling prices of a share. It is a crucial concept in trading and investment, indicating the profitability potential of a transaction. Higher liquidity typically results in a lower spread, signifying a narrower gap between buying and selling prices, while lower liquidity leads to a wider spread.

1. Public Issue : Raising capital by selling shares to a select group of investors
- Incorrect. Public Issue refers to raising capital from the general public, not a select group of investors. This method is open for all Indian citizens.

2. Rights Issue : Raising capital from the existing shareholders of a company
- Correct. Rights Issue involves raising capital by offering shares to the existing shareholders of the company.

3. Private Placement : Raising capital open for all Indian citizens
- Incorrect. Private Placement refers to raising capital by selling shares to a select group of investors, typically financial institutions or select individuals, through direct negotiations.

4. Book Building : A provision allowed by SEBI to all Initial Public Offers (IPOs)
- Correct. Book Building is a process allowed by SEBI where the price of shares is determined based on the bids received from investors during an IPO.

Thus, pairs 2 and 4 are correctly matched.

1. AIM (Alternate Investment Market) - Canada

Incorrect. AIM is in the United Kingdom, not Canada.

2. GEM (Growth Enterprise's Market) - Hong Kong

Correct. GEM is indeed the Growth Enterprise's Market in Hong Kong.

3. BSESME - India

Correct. BSESME is the SME platform of BSE in India.

4. MOTHERS (Market of the High-Growth and Emerging Stocks) - Japan

Correct. MOTHERS is indeed the Market of the High-Growth and Emerging Stocks in Japan.

Thus, pairs 2, 3, and 4 are correctly matched, making the correct option "Option C: Only three pairs."

Statement-I correctly describes SME exchanges as platforms for trading shares of small and medium enterprises due to challenges faced on main exchanges. However, Statement-II is inaccurate as SEBI's initial capital was not ₹50 crore provided by IDBI, IFCI, and ICICI. Instead, SEBI's initial capital was provided by the Government of India and the capital base was enhanced over time.

1. Spread: Correctly matched. The spread is indeed the difference between the buying and selling prices of a share. Higher liquidity leads to a lower spread.

2. Kerb Dealings: Incorrectly matched. Kerb dealings refer to transactions of stocks that take place outside the stock exchanges and after normal trading hours, not during.

3. Demutualisation: Correctly matched. Demutualisation is the process initiated by SEBI where ownership, management, and trading membership are segregated, and no broker is allowed to be on the Board of Directors or an office-bearer in a stock exchange.

4. Greenshoe Option: Correctly matched. Greenshoe Option is a provision that allows a company issuing shares for the first time to sell additional shares, usually 15%, to the public.

Hence, pairs 1, 3, and 4 are correctly matched, while pair 2 is incorrectly matched.

Answer: Option C: Only three pairs

1. NSE - Correct. The National Stock Exchange of India Ltd. (NSE) was indeed set up in 1992 and became operational in 1994.

2. OTCEI - Correct. The Over the Counter Exchange of India Ltd (OTCEI) was set up in 1989 and commenced trading in 1992.

3. ISE - Correct. The Interconnected Stock Exchange of India (ISE) was set up in 1998.

4. Indo Next - Incorrect. Indo Next was launched in 2005 by the BSE (Bombay Stock Exchange) and FISE (Federation of Indian Stock Exchanges), not NSE.

Thus, pairs 1, 2, and 3 are correctly matched, while pair 4 is incorrectly matched.

Therefore, the correct option is B: Only two pairs.

The primary function of a stock exchange in the context of securities trading is to facilitate the buying and selling of securities among investors in an organized and regulated environment. Stock exchanges provide a platform where investors can trade stocks, bonds, debentures, and other securities. They play a crucial role in ensuring liquidity in the market and setting prices for securities through the forces of supply and demand.

Statement 1 is correct: Spot exchanges involve participants from across the country, which leads to efficient price determination. This is a significant advantage over traditional 'mandis' where price discovery is limited to local participants.

Statement 2 is correct: Spot exchanges ensure transparency in price discovery by maintaining anonymity between buyers and sellers. This allows different price perceptions to converge without the need for direct interaction.

Statement 3 is correct: By enabling large participation from farmers, traders, and processors, spot exchanges help eliminate unhealthy practices such as cartelisation that are prevalent in traditional commodity markets.

Hence, all the statements are correct. The correct answer is Option D.