Which of the following statements about the secondary market is correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Its securities are traded, cleared and settled under SEBI rules.
Option (1) It deals with new securities being issued by companies for the first time. — Incorrect. Dealing in new securities issued for the first time is the primary market. The secondary market deals in existing securities.
Option (2) Its prices are determined and decided by the management of the company. — Incorrect. Prices decided by the management of the company belong to the primary market. In the secondary market, prices are set by demand and supply.
Option (3) Its flow of funds from savers to investors directly promotes capital formation. — Incorrect. The flow of funds from savers to investors directly promotes capital formation in the primary market. The secondary market promotes it only indirectly, by making shares easy to sell.
Option (4) Its securities are traded, cleared and settled under SEBI rules. — Correct. Trading in the secondary market follows set rules. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI.
NCERT (Pre-rationalised Edition): “SECONDARY MARKET The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities. It also contributes to economic growth by channelising funds towards the most productive investments through the process of disinvestment and reinvestment. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI. Advances in information technology have made trading through stock exchanges accessible from anywhere in the country through trading terminals. Along with the growth of the primary market in the country, the secondary market has also grown significantly during the last ten years.” |