NISM Series-XIII: Common Derivatives Practice Exam

The NISM Series-XIII: Common Derivatives examination aims to establish a standard minimum level of knowledge for:

• Individuals who are authorized users and sales personnel of trading members operating within the Currency Derivatives Segment of recognized stock exchanges and engaged in trading Currency Derivatives.
• Individuals who are authorized users and sales personnel of trading members registered in the Currency Derivatives Segment of recognized stock exchanges and engaged in trading Interest Rate Derivatives.
• Associated persons acting as authorized users and sales personnel of trading members within an equity derivatives exchange or equity derivative segment of recognized stock exchanges.

This examination is designed to provide a comprehensive understanding of various derivative products across Equity Derivatives, Currency Derivatives, and Interest Rate Derivatives segments, encompassing regulations and associated risks, as well as the clearing and settlement processes of exchanges. Additionally, the NISM series covers competencies related to comprehending India's financial framework, highlighting the significance of regulatory frameworks governing the Indian securities market, particularly those of exchange-traded derivatives.

Who should take the exam?

The NISM Series-XIII: Common Derivatives exam is suitable for:

• Industry Professionals
• Approved users and sales personnel of trading members
• Individuals interested in pursuing a career in derivatives markets or related fields.
• Professionals seeking to enhance their knowledge of derivatives products and their applications.
• Anyone interested in gaining a basic understanding of derivatives, hedging strategies, and the regulatory framework surrounding derivatives trading in India.

Exam Learning Objectives:

Upon successful completion of the NISM series examination, candidates should:

• Have foundational knowledge of the Indian derivatives market, spanning Equity Derivatives, Currency Derivatives, and Interest Rate Derivatives.
• Grasp the diverse trading and hedging strategies applicable to futures and options.
• Understand the processes of clearing, settlement, risk management, and operational mechanisms relevant to derivatives markets.
• Demonstrate awareness of the regulatory landscape governing derivatives markets in India.

Exam Details

• Exam Name: NISM-Series-XIII: Common Derivatives
• Exam Languages: English
• Exam Questions: 150 Questions
• Time: 180 minutes
• Passing Score: 60% or 90 marks

Course Outline 

The Exam covers the given topics  - 

Topic 1: Overview of Derivatives

• Introduction to derivatives
  
• History and evolution of derivatives market
  
• Factors influencing the growth of derivatives market
• History of Indian derivatives Market and available derivative products in India
• Market participants and their roles in the derivatives markets
• OTC and Exchange Traded Market
• Significance and economic purpose of derivatives
• Risks associated with financial derivatives

Topic 2: Understanding Underlying Markets

• Introduction to Equity Markets and Equity Indices
• Introduction to Currency Markets
• Introduction to Fixed-income Securities
• Introduction to “Interest Rate” concept and yield curve
• Return and Risk Measures for Debt Securities (Current yield, YTM, Duration, PVBP, Convexity, etc.)

Topic 3: Learn about Forwards and Futures

• Introduction to Forwards and futures contracts
• Forwards and Futures on Equities
• Payoff Charts for Futures contract
• Futures pricing
• Basic differences in Commodity, Equity and Index Futures
• Exchange Traded Currency Futures
• Concept of Interest rate parity and pricing of currency futures
• Interest Rate Futures
• Delivery aspects of IRD contracts including conversion factor, invoice amount, cheapest-to-deliver bond

Topic 4: Strategies Using Futures

• Strategies using Equity Futures
• Strategies for hedging, speculation and arbitrage in futures market
• Strategies Using Currency Futures
• Strategies Using Interest Rate Futures

Topic 5: Introduction to Options – Options on Equities and Currencies

• Basics of options
• Concept of option premium
• Call and Put option
• Buying and selling (writing) options
• European vs. American option
• Moneyness of an option
• Binomial and Black-Scholes option pricing models and option Greeks
• Payoff charts for options
• Uses of Options

Topic 6: Understand Option Trading Strategies – Strategies using Equity Options and Currency options

• Option spreads and their payoff charts
• Straddle: market view and payoff charts
• Strangle: market view and payoff charts
• Covered Call: market view and payoff charts
• Protective Put: market view and payoff charts
• Collar: market view and payoff charts
• Butterfly spread: market view and payoff charts

Topic 7: Introduction to Trading, Clearing, Settlement & Risk Management

• Introduction to Trading Systems
• Clearing Mechanism and computation of open positions
• Settlement Mechanism for futures and options contracts
• Margining and mark to market (MTM) under SPAN
• Risk Management features, position limits and net worth requirements
• Margin collection process of Clearing Corporations and delivery procedure

Topic 8: Legal and Regulatory Environment

• Provisions of Securities Contract (Regulation) Act, 1956
• Role of SEBI in regulating Derivatives market and SEBI Act, 1992
• Important rules and regulations on trading in Derivatives market
• Regulations in clearing & settlement and risk management
• Outline major recommendations of the L C Gupta Committee
• Outline major recommendations of the J R Verma Committee
• RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives
• Provisions of Foreign Exchange Management Act, 1999
• Salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008
• Features of RBI Circular ‘Guidelines on trading of Currency Futures in Recognized Stock / New Exchanges’
• Salient features of SEBI Regulations for Currency Derivatives Exchanges
• Explain the role of various regulators in Bond and Interest Rate Derivatives Market
• Regulatory reporting requirements for Interest Rate Derivatives Markets
• Role of FIMMDA in fixed income and derivatives markets in India

Topic 9: Accounting and Taxation

• Accounting treatment for derivative contracts
• Taxation of derivative transaction in securities

Topic 10: Sales Practices, Code of Conduct and Investor Protection Measures

• Basic features of SEBI Codes of Conduct for Brokers and Sub-Brokers
• Importance of risk profiling of clients in sales process
• Importance of KYC and required documentation for investors to trade in Derivatives contract
• Best practices in derivatives sales
• Grievance redressal mechanism available to the investors
• Nature of complaints considered by exchanges
• Arbitration mechanism at exchanges