Q.What is dematerialisation?
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The secondary market, also called the stock market, is where existing securities are bought and sold among investors after they have been issued in the primary market. It provides liquidity and marketability to securities, allowing investors to convert holdings into cash easily. Trading takes place through recognised stock exchanges where prices are determined by the forces of demand and supply. Unlike the primary market, no fresh capital is raised by the company here; ownership simply transfers …
Dematerialisation is the process of turning physical share certificates into electronic records held in a demat account. This Class-12 Commerce question asks its meaning. …
Dematerialisation means converting physical securities into electronic form held in a demat account through a depository.
Under dematerialisation, paper certificates of shares, debentures or bonds are surrendered and replaced by electronic entries in the investor's demat account maintained by a depository (like NSDL or CDSL) through a depository participant. It removes the risks of theft, loss, forgery and delay associated with physical certificates and makes buying, selling and transfer …
Showing the 12 most recent of 18 on this concept.
- CBSE 2026Set 66/3/11 markMCQQ.Read the following statements : Assertion (A) and Reason (R). Assertion (A) : Holding shares in demat form is very convenient as it is just like a bank account. Reason (R) : Securities and Exchange Board of India (SEBI) has made it mandatory for the settlement procedures to take place in demat form. Choose the correct alternative from the following : (A) Assertion (A) is false and Reason (R) is true. (B) Both Assertion (A) and Reason (R) are false. (C) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). (D) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
›Reveal solutionSolution
Both the convenience of demat accounts and SEBI's mandate for dematerialised settlement are true statements, but SEBI's mandate is not the reason for the inherent convenience of demat accounts.
To understand this assertion and reason, we must first grasp the concept of dematerialisation in the context of the Indian securities market and the role of its primary regulator, SEBI.
Historically, shares were held in physical form as paper certificates. This presented numerous challenges, including the risk of theft, damage, forgery, and the cumbersome process of transfer. To overcome these issues and modernise the capital market, the system of dematerialisation was introduced.
A demat account, short for dematerialised account, allows investors to hold their shares and other securities in an electronic form. This is precisely why Assertion (A) is true. The convenience of a demat account stems from its digital nature, making it akin to a bank account where money is held electronically rather than as physical cash. Just as you can transfer funds between bank accounts with ease, a demat account allows for quick and seamless transfer of securities.
NoteThe term "demat" is widely used in India to refer to these electronic accounts for holding securities. It's a fundamental component of modern stock market operations.
The benefits of holding shares in demat form are numerous:
- Elimination of physical certificates: This removes the risks associated with handling paper, such as loss, theft, or mutilation.
- Ease of transfer: Shares can be transferred electronically, making transactions faster and more efficient.
- Reduced paperwork: The need for physical share transfer forms and stamps is eliminated.
- Lower transaction costs: In many cases, electronic transactions are cheaper than physical ones.
- Increased safety and security: The electronic system reduces the chances of fraud and errors.
- Access to various corporate benefits: Dividends, bonuses, and rights issues are automatically credited to the demat account or linked bank account.
Now, let's consider Reason (R). The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities market in India. Its primary objective is to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market. To ensure efficiency, transparency, and investor protection, SEBI has indeed played a crucial role in promoting and eventually mandating dematerialisation.
ImportantSEBI's role is paramount in ensuring a fair and orderly functioning of the Indian capital markets. Its regulations are designed to safeguard investors and maintain market integrity.
SEBI has made it mandatory for the settlement procedures of shares and other securities to take place in dematerialised form. This means that when you buy or sell shares on the stock exchange, the actual transfer of ownership happens electronically through demat accounts. This regulation has significantly streamlined the settlement process, reduced settlement cycles, and minimised operational risks in the market. Therefore, Reason (R) is also true. …
- CBSE 2026Set 66/3/11 markMCQQ.The market where existing securities are traded is known as : (A) Both Primary and Secondary Market (B) Primary Market (C) Secondary Market (D) Money Market
›Reveal solutionSolution
The market where existing securities are traded is the Secondary Market. The Primary Market is for new issues, while the Secondary Market handles subsequent trading among investors.
The question tests a fundamental distinction in financial markets: the difference between where securities are created and where they are traded afterwards. Many students confuse these two, so let’s build the concept from the ground up.
Think of a company issuing shares for the first time — say, through an Initial Public Offering (IPO). That first sale happens in the Primary Market. The company receives the money, and the securities enter the hands of initial investors. Once that’s done, those shares don’t just disappear. Investors who bought them may want to sell later, and new investors may want to buy. That subsequent trading — between investors, without the company being directly involved — takes place in the Secondary Market.
So the key idea is simple:
- Primary Market = new securities are issued (first-time sale).
- Secondary Market = existing securities are traded (resale).
Now let’s apply this to the options given.
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Option (B) Primary Market — This is where new securities are issued for the first time. The company or government raises fresh capital here. Existing securities are not traded here; they are created here. So this is incorrect.
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Option (C) Secondary Market — This is exactly the market for trading securities that already exist. Stock exchanges like the BSE, NSE, or NYSE are secondary markets. When you buy a share of Reliance from another investor, you’re in the secondary market. This matches the description perfectly.
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Option (A) Both Primary and Secondary Market — This would be true only if the question said “where securities are traded” without the word “existing.” But the word “existing” is crucial — it excludes the primary market, which only handles new issues. So this is wrong. …
- CBSE 2026Set MARCH1 markMCQQ.How many times a security can be sold in a Secondary Market?(a) Three times(b) Only one time(c) Multiple times(d) Two times
›Reveal solutionSolution
A security can be sold multiple times in the secondary market — option (c).
The secondary market (stock exchange) is where existing, already-issued securities are traded among investors. Unlike the primary market, where a security is issued only once, the secondary market provides continuous liquidity.
- The same share can pass from one investor to another again and again. …
- CBSE 2026Set MARCH1 markQ.When did Depository Act come into force?
›Reveal solutionSolution
Depositories Act, 1996.
In this GSEB Class-12 Commerce question, the Depositories Act, 1996 provided the legal framework for holding and transferring securities in electronic (demat) form through depositories such a …
- CBSE 2025Set 66/4/11 markMCQQ.Radhika wants to sell 20,000 shares of 'Tara Ltd.' held by her. In which of the following market can she sell these shares ? (A) Primary Market (B) Secondary Market (C) Money Market (D) All of the above markets
›Reveal solutionSolution
Radhika wants to sell shares she already owns; this transaction of existing securities between investors happens in the Secondary Market.
When an individual like Radhika wants to sell shares she already holds, it's crucial to understand the fundamental difference between the primary and secondary financial markets. These markets serve distinct purposes in the financial system.
Concept and Intuition
Financial markets are places where financial instruments like shares, bonds, and derivatives are bought and sold. They facilitate the flow of capital between those who have it (savers/investors) and those who need it (companies/governments).
The key distinction lies in whether the securities being traded are newly issued or already existing.
- Primary Market: This is where companies or governments issue new securities for the first time to raise capital directly from investors. Think of it as the "first sale" market. When a company goes public with an Initial Public Offering (IPO), it's raising money in the primary market. The company receives the proceeds from these sales.
- Secondary Market: This is where existing securities are traded between investors. The company that originally issued the shares is not directly involved in these transactions and does not receive any proceeds from sales in the secondary market. This market provides liquidity to investors, allowing them to buy or sell their holdings whenever they wish. Stock exchanges like the NSE or BSE are prime examples of secondary markets.
- Money Market: This market deals with short-term debt instruments (typically with maturities of less than one year), such as commercial papers, treasury bills, and certificates of deposit. It is used for short-term borrowing and lending, not for trading equity shares.
1. Analyze Radhika's Situation
Radhika holds 20,000 shares of 'Tara Ltd.' This means the shares have already been issued by Tara Ltd. and are currently part of Radhika's investment portfolio. She wants to sell these shares. Her action involves transferring ownership of existing shares from herself to another investor.
2. Evaluate the Primary Market …
- CBSE 2025Set ANNUAL1 markMCQQ............. creates liquidity. (A) Organised market (B) Unorganised market (C) Primary market (D) Secondary market
›Reveal solutionSolution
The secondary market creates liquidity by providing a continuous, ready platform to resell existing securities.
In the BSEB Class-12 Business Studies syllabus, the financial market is split into the primary market (where fresh securities are issued) and the secondary market (where previously issued securities are traded). Liquidity is the ability to convert an investment into cash quickly and at a fair price. This is exactly what a secondary market such as a stock exchange provides: an investor who bought shares earlier can sell them any trading day to another buyer, so money is never locked in.
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- CBSE 2024Set MARCH1 markMCQQ.How many types of orders are there in purchase-sales of securities?(a) Two(b) Three(c) Four(d) Five
›Reveal solutionSolution
There are two basic types of orders in the purchase and sale of securities.
When a client places an order with a broker, it is of two main kinds: (i) an at-best (market) order, where the broker buys or sells at the best/current market price, and (ii) a limit order, where the client fixes a maximum buying pric …
- CBSE 2024Set MARCH1 markQ.When did Depository Act come into force?
›Reveal solutionSolution
The Depositories Act came into force in 1996.
The Depositories Act, 1996 was enacted to permit securities to be held and transferred in electronic (dematerialised) form through depositories such as NSDL and CDSL. This removed the problems of physical share certificates (loss, the …
- CBSE 2024Set ANNUAL1 markMCQQ.Stock exchange is a :(a) Money market(b) Primary market(c) Secondary market(d) Commodity market
›Reveal solutionSolution
Trading in existing securities happens on the stock exchange, which is the secondary market — answer (c).
The capital market has two segments. The primary market (new-issue market) is where a company raises fresh capital by issuing new securities for the first time (e.g., through an IPO). The secondary market is where previously issued, existing securities are traded between investors — this is precisely the role of a stock exchange, which provides a ready, continuous and regulated marketplace for buying and selling listed shares, deben …
- CBSE 2024Set ANNUAL1 markMCQQ.......... creates liquidity (A) Organised market (B) Unorganised market (C) Primary market (D) Secondary market
›Reveal solutionSolution
Liquidity — the ease of turning securities into cash — is provided by the secondary market, where existing securities are bought and sold. The answer is (D).
In this BSEB Class-12 Business Studies question on financial markets, liquidity refers to how quickly and easily an investor can convert an investment into cash without heavy loss of value.
The secondary market (the stock exchange) is the market for trading securities that have already been issued. Because an investor can go to this market and sell existing shares or bonds to another investor whenever needed, these securities become easily saleable, i.e. liquid. This ready marketability is the main reason investors are willing to subscribe to new issues in the first place.
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- CBSE 2023Set 66/3/11 markMCQQ.Rahul wants to buy shares of 'Rexter Ltd.' which are being traded at the National Stock Exchange. He feels that the share prices will go up in the future. Which market should he approach for this purpose ? (A) Money market (B) Primary market (C) Secondary market (D) Both(b) and (c)
›Reveal solutionSolution
Rahul wants to buy shares that are already being traded on the National Stock Exchange. That means he is buying existing shares from another investor, not new shares from the company. This happens in the Secondary market, so the correct answer is (C).
The key here is to understand the difference between a Primary market and a Secondary market — not just as definitions, but as what actually happens when you buy shares.
When a company issues shares for the first time (like in an IPO — Initial Public Offering), that happens in the Primary market. The company receives the money, and new shares are created. But once those shares are listed on a stock exchange like the NSE, they start trading among investors. That trading — buying and selling existing shares — happens in the Secondary market.
Rahul wants to buy shares that are already being traded at the NSE. He is not participating in a new issue. He is buying from someone who already owns those shares. So he needs the secondary market.
Let’s walk through the options:
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Money market — This is for short-term debt instruments (like Treasury bills, commercial paper). It has nothing to do with buying shares of a company. So (A) is wrong.
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Primary market — This is where new securities are issued. If Rahul wanted to buy shares in an IPO or a rights issue, he would go here. But the question says the shares are already being traded at the NSE. So (B) is not correct.
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Secondary market — This is the stock exchange itself, where already-issued shares are bought and sold between investors. Since the shares are trading on the NSE, this is exactly where Rahul should go. So (C) is correct. …
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- CBSE 2023Set ANNUAL1 markQ.Fill in the blank:(x) Stock exchange is a ______ market.
›Reveal solutionSolution
The blank is "secondary": a stock exchange is a secondary market.
Securities markets have two segments — the primary (new issue) market, where fresh securities are issued for the first time, and the secondary market, where existing securities are traded among investors. A stock exchange provides the organised platform for buying and selling alrea …
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