In stock market terms, penny stocks are:

The correct answer is Option (3) → securities that have no value on the stock exchange but whose trading adds to speculation

Option (1) securities that are issued below face value but are repaid at par on maturity — Incorrect. Issue below face value and repayment at par is a feature of Treasury bills, a money market instrument.

Option (2) securities that have no physical certificate but are held as an electronic balance in an account — Incorrect. Holding securities as an electronic balance in an account is dematerialisation.

Option (3) securities that have no value on the stock exchange but whose trading adds to speculation — Correct. Penny stocks have no value on the stock exchange. Yet people still trade in them, and this trading adds to speculation.

Option (4) securities that are not traded on the screen but are sold on the floor to the highest bidder — Incorrect. Selling shares on the floor to the highest bidder, with prices shouted out, was the old open outcry system.