Market Participants

Q1. (10 marks)

• Retail investors (2): individuals trading own capital, small scale (thousands to few lakhs), open demat via broker/DP, no institutional registration; collectively fragmented, less coordinated impact.
• DIIs (2): domestic institutions — mutual funds, insurance cos, banks, pension funds; large capital; SEBI-registered; provide market stability, often counter-buy when FIIs sell.
• FIIs (2): foreign institutional/portfolio investors registered with SEBI as FPIs; very large concentrated capital; subject to FPI regulations; heavy inflow/outflow moves indices.
• Comparison structure clarity (2).
• Why FII outflows are sharper (2): FII capital is large, concentrated, and often correlated (simultaneous risk-off moves driven by global factors/currency), causing bulk selling against thin liquidity → larger price impact than dispersed retail selling.

Q2. (12 marks) (a) Wednesday (T+1) — Monday trade settles next trading day, Tuesday; the correct T+1 credit day is Tuesday (T+1 = next working day). (Award for stating T+1 = Tuesday.) (2)

• Correction note: Under T+1, credit occurs on Tuesday. (2)

(b) Novation (5): The clearing corporation interposes itself as buyer to every seller and seller to every buyer, splitting the original contract into two — buyer↔CCP and CCP↔seller. Each party now faces only the CCP, not an unknown counterparty. Because the CCP is well-capitalised, guarantees settlement, and collects margins, individual counterparty default risk is eliminated. (5)

(c) Working (5):

• Share value = $500 \times 240 = ₹120000$ (2)
• Brokerage = $0.03\% \times 120000 = 0.0003 \times 120000 = ₹36$ (1)
• STT = $0.1\% \times 120000 = 0.001 \times 120000 = ₹120$ (1)
• Total buy cost = $120000 + 36 + 120 = ₹120156$ (1)

Q3. (10 marks) (a) Spread = $100.10 - 99.50 = ₹0.60$; Mid = $(99.50+100.10)/2 = ₹99.80$. (3)

(b) (5):

def mm_profit(bid, ask, qty):
    return (ask - bid) * qty
 
mm_profit(99.50, 100.10, 10000)  # = 0.60 * 10000 = 6000

Result = ₹6000.

(c) Liquidity provision (2): continuous two-sided quotes ensure investors can transact any time, reducing execution uncertainty and narrowing effective transaction costs / price discovery.

Q4. (10 marks)

• Sequence (4): Investor places order → broker routes to → stock exchange (matches) → clearing corporation (nets & guarantees) → depository → Depository Participant credits investor demat.
• NSDL (2): National Securities Depository Ltd — affiliated with NSE.
• CDSL (2): Central Depository Services Ltd — affiliated with BSE.
• Why replaced physical certificates (2): dematerialisation removed forgery, loss, theft, bad-delivery, and slow transfer; electronic holdings enable instant, safe, low-cost settlement.

Q5. (10 marks) (a) Any three (3): protect investor interests; regulate/register intermediaries (brokers, DPs, FPIs); prevent fraud/insider trading & market manipulation; oversee exchanges and enforce disclosure. (b) Any four (4): minimum paid-up capital/market cap; minimum public shareholding (e.g. 25%); track record/profitability norms; prospectus & disclosure filing; corporate governance compliance; minimum number of shareholders. (c) (3): SEBI enforces disclosure/anti-fraud rules and penalises misconduct; listing requirements ensure only financially sound, transparent firms trade — together they reduce information asymmetry and default risk, protecting retail investors who lack resources to vet companies.

Q6. (8 marks) (a) (4):

• Mutual fund: open to retail public, heavily SEBI-regulated, limited/no leverage, daily NAV.
• Hedge fund: restricted to accredited/high-net-worth investors, lightly regulated, uses leverage & complex/short strategies. (b) (4):
• NAV = (Assets − Liabilities) / Units
• = $(500000000 - 20000000)/40000000$
• = $480000000/40000000$
• = ₹12 per unit

[
  {"claim":"Q2c total buy cost is 120156","code":"share=500*240; brok=0.0003*share; stt=0.001*share; result=(share+brok+stt)==120156"},
  {"claim":"Q3 spread 0.60 and mid 99.80","code":"result=(round(100.10-99.50,2)==0.60) and (round((99.50+100.10)/2,2)==99.80)"},
  {"claim":"Q3b mm_profit is 6000","code":"result=((100.10-99.50)*10000)==6000.0"},
  {"claim":"Q6b NAV per unit is 12","code":"result=((500000000-20000000)/40000000)==12"}
]