The secondary market is a crucial part of the financial system where investors buy and sell previously issued securities like shares, bonds, and debentures. Unlike the primary market, where companies issue new securities, the secondary market provides liquidity to investors by enabling the trading of existing securities.
Secondary Market Class 10 Notes
What is meant by secondary market?
The secondary market is a place where investors buy and sell shares that have already been issued in the primary market. It includes both equity, meaning stocks, and debt, meaning bonds.
What is the role of the secondary market?
The role of the secondary market is to help investors by allowing investors to easily trade their securities. It also helps in price discovery, monitors company performance and supports incentive-based management through market feedback.
What is the difference between the primary market and the secondary market?
The primary market and secondary market are the two different types of markets in the financial system. In the primary market, securities are issued for the first time, like IPOs, but the secondary market is where the existing securities are traded among investors, like buying/selling shares on the stock exchange.
Stock Exchange
A stock exchange is a regular marketplace where people can buy or sell trade shares of publicly listed companies. The role on the Stock Exchange is to:
- Provide a platform for investors to buy and sell shares easily.
- Allows investors to quickly convert shares into cash.
- Share prices are determined by the demand and supply.
- As per the SEBI rule, protect investors from fraud.
- All the listed trades are recorded and visible.
- Builds trust by ensuring smooth, secure and regulated transactions.
What is demutualisation of stock exchanges?
Demutualisation refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another.
How is a demutualised exchange different from a mutual exchange?
In a mutual stock exchange, the broker owns the exchange, manages it and also trades shares on it. This can create a problem because they might make decisions for themselves. In a demutualised exchange, these three roles – ownership, management and trading – are handled by different people. This helps to make the exchange more fair, transparent and trustworthy.
Stock Trading
What is Screen-Based Trading?
Screen-based trading is a modern method to buy or sell shares using a computer or an online system. Previous time people bid on the trading floor; now people can place orders electronically through a screen. The system matches buyer and seller automatically, making trading faster, more transparent and more efficient.
What is NEAT?
NEAT stands for National Exchange for Automated Trading. NSE is the first exchange in the world to use satellite communication technology for trading. NEAT is the electronic trading system used by the National Stock Exchange (NSE) in India, launched in 1994. It replaced the old manual trading system and introduced screen-based, automated trading.
How to place orders with the broker?
You may go to the broker’s office or place an order on the phone/internet or as defined in the Model Agreement, which every client needs to enter into with his or her broker.
How does an investor get access to an internet-based trading facility?
There are many brokers of the NSE who provide internet-based trading facilities to their clients. Internet-based trading enables an investor to buy/sell securities through the internet, which can be accessed from a computer at the investor’s residence or anywhere else where the client can access the internet.
What is a Contract Note?
A contract note is an official document that confirms the buying or selling of shares done by a broker on behalf of a client on a particular day.
What details are required to be mentioned on the contract note issued by the stockbroker?
A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note, inter alia, should have the following:
- Name, address and SEBI registration number of the member broker.
- Name of Partner/Proprietor/Authorised Signatory.
- Dealing Office Address/Tel. No./Fax No., Code number of the member given by the Exchange.
- Contract number, date of issue of contract note, settlement number and time period for settlement.
- Constituent (Client) name/Code Number.
- Order number and order time corresponding to the trades.
- Trade number and trade time.
- Quantity and kind of security bought/sold by the client.
- Broking and purchase/sale rate.
- Service tax rates, securities transaction tax and any other charges levied by the broker.
- Appropriate stamps have to be affixed to the contract note, or it is mentioned that the
- Consolidated stamp duty is paid.
- Signature of the Stock Broker/Authorised Signatory.
What is the maximum broking that a broker can charge?
The maximum broking that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.
If the trade is happening inside the stock exchange, then it is safe, but if any trade is done outside of the stock exchange, then it is risky and unofficial. So, inside the trade are more benefits, like the best market price, no risk of fraud, a complaint system, protection funds and legal protection. If the trade happens outside the exchange, then there is no guarantee of a fair price, no legal help if something goes wrong, no protection found and a higher chance of fraud or cheating.
How to know if the broker or sub-broker is registered?
One can confirm it by verifying the registration certificate issued by SEBI. A broker’s registration number begins with the letters ‘INB’, and that of a sub-broker with the letters ‘INS’.
What precautions must one take before investing in the stock markets?
- Here are some useful pointers to bear in mind before you invest in the markets:
- Make sure your broker is registered with SEBI.
- Ensure that you collect contract notes within 1 working day.
- Investors should always know the risk that they are taking.
- Do not be misled by market rumours, advertisements or ‘hot tips’ of the day.
- Take informed decisions by studying the fundamentals of the company.
- Spend some time checking out the company before investing.
- Do not be attracted by announcements of fantastic results/news reports about a company.
- Do your own research before investing in any stock.
- Do not be attracted to stocks based on what an internet website promotes.
- Be cautious about stocks which show a sudden spurt in price or trading activity.
- Any advice or tip that claims that there are huge returns expected, especially for acting quickly, may be risky.
What dos and don’ts should an investor bear in mind when investing in the stock markets?
Do’s for Stock Market Investors
- Ensure that the broker has a valid SEBI registration certificate.
- Sign a clear agreement with your broker or sub-broker.
- Ensure that you give all your details in the ‘Know Your Client’ form.
- Read and understand the Risk Disclosure Document.
- Insist on a contract note issued by your broker only for trades done each day.
- Ensure that you receive the contract note from your broker within 24 hours of the transaction.
- Check that the contract note includes the broker’s name, trade time and number, price, broking, taxes, and signature of the authorised person.
- To cross-check the genuineness of the transactions, log in to the NSE website (www.nseindia.com) and go to ‘trade verification’.
- While delivering shares to your broker to meet your obligations, ensure that the delivery instructions are made only to the designated account of your broker only.
- Insist on periodical statements of accounts of funds and securities from your broker.
Don’ts for Stock Market Investors
- Do not trade on behalf of others or use others’ accounts.
- Do not sign blank Delivery Instruction Slips (DIS).
- Do not leave signed DIS with anyone.
- Do not give money for assured/fixed returns—it’s illegal.
- Do not deal with unauthorised portfolio managers.
- Do not accept trades under someone else’s client code.
- Do not delay payments or deliveries to your broker.
- Do not accept unsigned or duplicate contract notes.
- Do not accept contract notes signed by unauthorised persons.
- Do not ignore discrepancies—report them in writing.
- Do not rely on verbal promises—always get written proof.
- Do not take funding from intermediaries without understanding risks.
Products in the Secondary Markets
What are the products dealt in the secondary markets?
Following are the main financial products/instruments dealt with in the secondary market, which may be divided broadly into shares and bonds:
- Equity Shares: It is referred to as an ordinary share; shareholders get voting rights and a share in profits (dividends).
- Rights Issue/Rights Share: When new shares are offered to existing shareholders at a fixed ratio and price. It helps the company to raise the capital.
- Bonus Shares: When the free shares are given to existing shareholders. In this, no payment is required; this share is issued from the company reserves.
- Preference Shares: Fixed dividend paid before equity shareholders. It helps surplus distribution and liquidation. No voting rights usually.
- Cumulative Preference Shares: A type of preference share on which dividends accumulate if they remain unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.
- Cumulative Convertible Preference Shares: A type of preference share where the dividend payable on the same accumulates if not paid. After a specified date, these shares will be converted into equity capital of the company.
Bond
- Bond: A bond is a type of financial instrument that represents a loan made by an investor to a borrower—typically a company, municipality, or government.
- Zero Coupon Bond: Issued at a discount and repaid at face value, which means return = Face value – purchase price.
- Convertible Bond: Can be converted into equity shares at a fixed price and only offers flexibility to investors.
- Treasury Bill (T-Bills): It is short-term government security (up to 1 year). It was issued at a discount to meet short-term government funding needs.
Equity Investment
Why should one invest in equities in particular?
When you buy a share of a company, you become a shareholder in that company. Shares are also known as equities. Equities have the potential to increase in value over time.
- Equities are considered the most rewarding when compared to other investment options if held over a long duration.
- Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment. The average annual return of the stock market over the period of the last fifteen years, if one takes the Nifty index as the benchmark to compute the returns, has been around 16%.
What has been the average return on equities in India?
If we take the Nifty index returns for the past fifteen years, the Indian stock market has returned about 16% to investors on average in terms of increase in share prices or capital appreciation annually. Besides that, on average, stocks have paid a 1.5% dividend annually.
Which are the factors that influence the price of a stock?
Broadly there are two factors: (1) stock specific and (2) market specific. The stock-specific factor is related to people’s expectations about the company, its future earnings capacity, financial health and management, level of technology and marketing skills. The market-specific factor is influenced by the investor’s sentiment towards the stock market as a whole.
What is meant by the terms ‘growth stock’ and ‘value stock’?
- Growth Stocks: In growth stocks, companies are growing faster than others in sales and earnings. The growth stocks do not pay dividends. Growth stocks are ideal for the investors who want long-term capital gains.
- Value Stocks: The value stocks are undervalued by the market. It can be dropped due to temporary issues or low investor interest. The investor has to look at the P/E ratio, dividend yield, sales and market cap to understand the company.
You may subscribe to issues made by corporates in the primary market. In the primary market, resources are mobilised by the corporates through fresh public issues (IPOs) or through private placements.
What are bid and ask prices?
The ‘Bid’ is the buyer’s price. It is this price that you need to know when you have to sell a stock. Bid is the rate/price at which there is a ready buyer for the stock, which you intend to sell. The ‘Ask’ (or offer) is what you need to know when you’re buying, i.e., this is the rate/price at which there is a seller ready to sell his stock. The seller will sell his stock if he gets the quoted “Ask’ price.
What is a portfolio?
A portfolio is a collection of different investment assets owned by an individual, designed to meet specific financial goals.
What is Diversification?
It is a risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimise the impact of any one security on overall portfolio performance. Diversification is possibly the best way to reduce the risk in a portfolio.
What are the advantages of having a diversified portfolio?
Diversification means spreading your investments across different types of assets so that your overall portfolio stays balanced—even if one asset performs poorly. If stocks go down, then bonds or gold may stay stable or even rise. Diversification helps to reduce risk and protect your money.
Debt Investment
What is a ‘Debt Instrument’?
A debt instrument represents a contract whereby one party lends money to another on predetermined terms with regard to the rate and periodicity of interest and the repayment of the principal amount by the borrower to the lender.
What are the features of debt instruments?
Each debt instrument has three features: maturity, coupon and principal.
- Maturity: Maturity of a bond refers to the date on which the bond matures, which is the date on which the borrower has agreed to repay the principal.
- Coupon: A coupon refers to the periodic interest payments that are made by the borrower (who is also the issuer of the bond) to the lender (the subscriber of the bond).
- Principal: Principal is the amount that has been borrowed and is also called the par value or face value of the bond. The coupon is the product of the principal and the coupon rate.
What is meant by ‘interest’ payable by a debenture or a bond?
Interest is the amount paid by the borrower (the company) to the lender (the debenture-holder) for borrowing the amount for a specific period of time.
What are the segments in the debt market in India?
There are three main segments in the debt markets in India, viz., (1) Government Securities, (2) Public Sector Units (PSU) bonds, and (3) Corporate Securities.
Who are the Participants in the Debt Market?
Given the large size of the trades, the debt market is predominantly a wholesale market, with dominant institutional investor participation. The investors in the debt markets are mainly banks, financial institutions, mutual funds, provident funds, insurance companies and corporates.
Are bonds rated for their credit quality?
Most bond/debenture issues are rated by specialised credit rating agencies. Credit rating agencies in India are CRISIL, CARE, ICRA and Fitch. The yield on a bond varies inversely with its credit (safety) rating. The safer the instrument, the lower is the rate of interest offered.
How can one acquire securities in the debt market?
You may subscribe to issues made by the government/corporates in the primary market. Alternatively, you may purchase the same from the secondary market through the stock exchanges.
Disclaimer: We have taken an effort to provide you with the accurate handout of “Secondary Market Class 10 Notes“. If you feel that there is any error or mistake, please contact me at anuraganand2017@gmail.com. The above CBSE study material present on our websites is for education purpose, not our copyrights.
All the above content and Screenshot are taken from Introduction to Financial Markets Class 10 NCERT Textbook, CBSE Sample Paper, CBSE Old Sample Paper, CBSE Board Paper and CBSE Support Material which is present in CBSEACADEMIC website, NCERT websiteThis Textbook and Support Material are legally copyright by Central Board of Secondary Education. We are only providing a medium and helping the students to improve the performances in the examination.
Images and content shown above are the property of individual organizations and are used here for reference purposes only. For more information, refer to the official CBSE textbooks available at cbseacademic.nic.in