Level 1 — RecognitionPrimary vs Secondary Market & IPOs

Primary vs Secondary Market & IPOs

⏱ 20 minutes30 marksprintable — key stays hidden on paper

LEVEL 1 — Recognition Test

Time Limit: 20 minutes
Total Marks: 30

Section A — Multiple Choice Questions (1 mark each) — 10 marks

Q1. In which market are securities issued to investors for the first time?

(a) Secondary market
(b) Primary market
(c) Derivatives market
(d) Money market

Q2. In a book building IPO, the issuer offers shares within a:

(a) Single fixed price
(b) Price band with a floor and cap
(c) Price decided only after listing
(d) Price set by the stock exchange

Q3. The document filed with SEBI containing detailed disclosures before an IPO but without the final price is called the:

(a) Annual Report
(b) Red Herring Prospectus (DRHP)
(c) Listing Agreement
(d) Rights Letter

Q4. The cut-off price in a book-built IPO refers to:

(a) The lowest price in the band
(b) The final price discovered at which shares are allotted
(c) The grey market premium
(d) The listing day closing price

Q5. Anchor investors are typically:

(a) Retail investors bidding at cut-off
(b) Institutional investors who bid one day before the IPO opens
(c) Company promoters
(d) Stock exchange officials

Q6. An OFS (Offer for Sale) involves:

(a) Fresh issue of new shares raising capital for the company
(b) Existing shareholders selling their shares to the public
(c) Issue of bonus shares
(d) Buyback of shares

Q7. A QIP (Qualified Institutional Placement) is a fund-raising method available to:

(a) Retail investors only
(b) Listed companies raising from qualified institutional buyers
(c) Unlisted startups only
(d) Foreign governments

Q8. Listing gain is best described as:

(a) Dividend paid on listing day
(b) Difference between listing price and issue price
(c) Interest earned on IPO application money
(d) Underwriter's commission

Q9. The role of an underwriter / merchant banker in an IPO is to:

(a) Guarantee the share price will rise
(b) Manage the issue and commit to subscribe unsold shares
(c) Regulate the IPO on behalf of SEBI
(d) Provide loans to retail applicants

Q10. An FPO (Follow-on Public Offer) is made by:

(a) A company that is not yet listed
(b) An already-listed company issuing additional shares to the public
(c) A mutual fund
(d) The stock exchange

Section B — Matching (1 mark each) — 6 marks

Q11. Match Column X with Column Y:

Column X		Column Y
(i) Primary market		(P) Trading between investors
(ii) Secondary market		(Q) GMP
(iii) Grey Market Premium		(R) New securities issued
(iv) Lot size		(S) Minimum shares per application
(v) Fixed price IPO		(T) One price fixed in advance
(vi) Anchor investor		(U) Bids before IPO opens

Section C — True / False with Justification (2 marks each) — 14 marks

(1 mark for correct T/F, 1 mark for justification)

Q12. In a fixed-price IPO, price discovery happens through a bidding range.

Q13. In the secondary market, the company directly receives the money when its shares are traded.

Q14. In an OFS, no new capital flows into the company from the sale.

Q15. A high Grey Market Premium (GMP) guarantees a listing gain.

Q16. A price band of ₹100–₹105 means retail bidders may bid at cut-off to accept the final discovered price.

Q17. In an oversubscribed IPO, every retail applicant is guaranteed full allotment.

Q18. A QIP does not require filing a full prospectus like a public IPO.

End of Paper

Answer keyMark scheme & solutions

Section A — MCQs (1 mark each)

Q1 — (b) Primary market. Primary market = first-time issuance; company raises fresh capital directly.

Q2 — (b) Price band with floor and cap. Book building discovers price via bids within a band; the "why": demand determines final price.

Q3 — (b) Red Herring Prospectus (DRHP). "Red herring" because it omits final price/size; contains all other disclosures for investor due diligence.

Q4 — (b) Final price discovered at which shares are allotted. Bidding at cut-off = agreeing to pay whatever final price is set within the band.

Q5 — (b) Institutional investors bidding one day before IPO opens. Anchors bring credibility/stability; lock-in applies to their allotment.

Q6 — (b) Existing shareholders selling to public. Money goes to selling shareholders (e.g., promoters), not the company.

Q7 — (b) Listed company raising from QIBs. QIP is a quick private route restricted to Qualified Institutional Buyers.

Q8 — (b) Difference between listing price and issue price. Positive difference = listing gain on debut.

Q9 — (b) Manage the issue and subscribe unsold shares. Underwriter guarantees subscription, not price appreciation.

Q10 — (b) Already-listed company issuing additional shares. "Follow-on" = follows an earlier IPO.

Section B — Matching (Q11, 1 mark each)

(i) Primary market → (R) New securities issued
(ii) Secondary market → (P) Trading between investors
(iii) Grey Market Premium → (Q) GMP
(iv) Lot size → (S) Minimum shares per application
(v) Fixed price IPO → (T) One price fixed in advance
(vi) Anchor investor → (U) Bids before IPO opens

Section C — True/False with Justification (2 marks each)

Q12 — FALSE. (1) Fixed-price IPOs have a single pre-announced price; bidding range/price discovery belongs to book building. (1)

Q13 — FALSE. (1) In the secondary market, money passes between buyer and seller (investors); the company gets funds only in the primary market. (1)

Q14 — TRUE. (1) In an OFS, existing holders sell shares, so proceeds go to sellers, not the company — no fresh capital raised. (1)

Q15 — FALSE. (1) GMP is an unofficial, sentiment-driven indicator; it can change or reverse, so it does not guarantee listing gains. (1)

Q16 — TRUE. (1) Bidding at cut-off means the retail investor agrees to pay the final discovered price within the band (₹100–₹105). (1)

Q17 — FALSE. (1) When oversubscribed, allotment is done by lottery/proportionate basis; not everyone gets shares. (1)

Q18 — TRUE. (1) A QIP uses a placement document to QIBs and skips the full public prospectus process, making it faster. (1)

Marks Summary

Section A: 10 × 1 = 10
Section B: 6 × 1 = 6
Section C: 7 × 2 = 14
Total = 30

[
  {"claim":"Section A has 10 marks (10 MCQs x 1)","code":"result = (10*1 == 10)"},
  {"claim":"Section B matching has 6 marks","code":"result = (6*1 == 6)"},
  {"claim":"Section C has 14 marks (7 T/F x 2)","code":"result = (7*2 == 14)"},
  {"claim":"Total marks equal 30","code":"a=10*1; b=6*1; c=7*2; result = (a+b+c == 30)"},
  {"claim":"Listing gain example: issue price 100, listing 118 gives 18","code":"issue=100; listing=118; result = (listing-issue == 18)"}
]