NISM Series-VIII: Equity Derivatives Practice Exam

NISM Series-VIII: Equity Derivatives Practice Exam

The NISM Series-VIII: Equity Derivatives certification aims to establish a standardized level of knowledge for individuals working as approved users and sales personnel of trading members in the equity derivatives segment of recognized stock exchanges.

The exam provides comprehensive insights into the structure and functioning of the equity derivatives market in India. It covers the various derivative products, their associated risks and regulations, and the clearing and settlement processes. Additionally, the exam ensures familiarity with India’s financial framework and the key regulations that govern the equity derivatives segment.

Who Should Take This Exam

This exam is beneficial for anyone who wants to work as a salesperson or an approved user of a trading member to trade equity derivatives on a recognized stock exchange in India. This includes but is not limited to:

• Stockbrokers and Sub-brokers
• Investment advisors dealing with equity derivatives
• Research Analysts focused on equity derivatives
• Relationship Managers handling equity derivative products

There are no formal prerequisites for taking the NISM Series-VIII exam. However, a basic understanding of financial markets and investment products is recommended.

Roles and Responsibilities

Individuals who pass the NISM Series-VIII exam will be able to:

• Explain the various equity derivative products like futures and options.
• Discuss the risks and rewards associated with equity derivatives.
• Understand the regulations governing the equity derivatives market in India.
• Explain the trading mechanism and order types used in equity derivative transactions.
• Describe the clearing and settlement process for equity derivative contracts.

Exam Details 

• Duration: 120 minutes
• Number of Questions: 100
• Passing Score: 60%
• Language: English

Learning Objectives

Upon successful completion, candidates will be able to:

• Grasp the fundamentals of the Indian equity derivatives market

• Apply trading strategies using futures and options on stocks and indices

• Understand the processes of clearing, settlement, and risk management in equity derivatives

• Navigate the regulatory landscape governing equity derivatives in India

Course Outline

The exam covers the following topics:

Chapter 1: Basics of Derivatives
A. Basics of Derivatives
B. Derivatives Market – History & Evolution
C. Indian Derivatives Market
D. Market Participants
E. Types of Derivatives Market
F. Significance of Derivatives
G. Various risks faced by the participants in derivatives

Chapter 2: Understanding Index
A. Introduction to Index
B. Significance of the stock index
C. Types of Stock Market Indices
D. Attributes of an Index
E. Index management
F. Major Indices in India
G. Application of Indices

Chapter 3: Introduction to Forwards and Futures
A. Introduction to forward contracts
B. Futures contracts
C. Contract specifications of futures contracts
D. Some important terminology associated with futures contracts
E. Differences between Forwards and Futures
F. Pay off Charts for Futures contract
G. Futures pricing
H. Price discovery and convergence of cash and futures prices on the expiry
I. Uses of futures

Chapter 4: Introduction to Options
A. Basics of options
B. Contract specifications of exchange-traded options
C. Moneyness of an option
D. Intrinsic value and time value of an option
E. Pay off Charts for Options
F. Distinction between futures and options contracts
G. Basics of Option Pricing and Option Greeks
H. Option Pricing Models
I. Implied volatility of an option
J. Analysis of options from the perspectives of buyer and seller

Chapter 5: Strategies using Equity futures and Equity options
A. Futures contracts for hedging, speculation and arbitrage
B. Use of options for trading and hedging
C. Arbitrage using options: Put-call parity
D. Delta-hedging
E. Interpreting open interest and put-call ratio for trading strategies

Chapter 6: Trading Mechanism
A. Trading Mechanism
B. Eligibility criteria for selection of stocks for derivatives trading
C. Selection criteria of Index for trading
D. Adjustments for Corporate Actions
E. Trading costs
F. Algorithmic trading
G. Tracking Futures and Options data
H. Introduction of Investor Risk Reduction Access (IRRA) platform

Chapter 7: Introduction to Clearing and Settlement System
A. Clearing Members
B. Clearing Mechanism
C. Interoperability of clearing corporations
D. Settlement Mechanism
E. Risk Management
F. Margining and mark to market under SPAN
G. Position limits
H. Violations and Penalties
I. Settlement Guarantee Fund and Investor Protection Fund:
J. Settlement of running account of Client’s funds lying with the TM
H. Cyber Security & Cyber Resilience framework (CSCRF) for Stock Brokers / Depository Participants

Chapter 8: Legal and Regulatory Environment
A. Securities Contracts (Regulation) Act, 1956
B. Securities and Exchange Board of India Act, 1992
C. Regulations in Trading
D. Regulations in Clearing & Settlement and Risk Management
E. Eligibility criteria for membership on derivatives segment
F. Standard Operating Procedure in the case of default by TM or CM
G. Standard Operating Procedure (SOP) for handling stock exchange outage

Chapter 9: Accounting and Taxation
A. Accounting
B. Taxation of derivative transaction in securities

Chapter 10: Sales Practices and Investors Protection Services
A. Understanding risk profile of the client
B. Risk Disclosure Document
C. Written Anti Money Laundering Procedures
D. Investors Grievance Mechanism