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Equity Derivatives

Frequently Asked Questions

1. Who can take NISM-Series-VIII: Equity Derivatives Certification Examination?

The following persons can take NISM-Series-VIII: Equity Derivatives Certification Examination:

  1. All associated persons functioning as approved users and sales personnel of the trading member of an equity derivatives exchange or equity derivative segment of a recognized stock exchange
  2. Interested students/professionals
  3. Any other individuals

2. For whom is this examination mandated?

Please refer to NISM Notification NISM/Certification/Series-VIII: ED/2012/1 dated September 20, 2012 (in the ‘Circulars’ section). NISM has specified this examination to be the requisite standard for associated persons functioning as approved users and sales personnel of the trading member of an equity derivatives exchange or equity derivative segment of a recognized stock exchange.

3. How can I register for NISM-Series-VIII: Equity Derivatives Certification Examination?

Candidates can register with any of the following Test Administrators.

1. National Institute of Securities Markets (NISM) https://certifications.nism.ac.in/nismaol/

For registrations candidates may visit any of the above websites.

After successful registration, candidates may select a test centre, date and time slot of their choice on the Test Administrator website. Candidates are required to follow further instructions available on the Test Administrator websites.

4. What is the fee structure?

The fees for "NISM-Series-VIII: Equity Derivatives Certification Examination" is Rupees One Thousand Five Hundred only (Rs. 1500/-).

5. What is the assessment structure?

The examination will be of 100 marks, will have 100 questions, and should be completed in 2 hours. There will be negative marking of 25% of the marks assigned to a question. The passing score for the examination is 60%.

6. Is there a study material available for preparing for this examination?

You will receive a soft copy of the workbook/study material after enrolment for the examination. For non-receipt of soft copy of the workbook/study material, you may contact the respective Test Administrator:

NISM: This email address is being protected from spambots. You need JavaScript enabled to view it.

7. Do I have to pay for the study material?

You will receive a soft copy of the workbook/study material free of cost after enrolment for the examination.Candidate can buy NISM workbooks online through Taxmann Publications Private Ltd.
Visit https://www.taxmann.com/bookstore/nism-iibf-books.aspx to place your orders for NISM workbooks.
If you prefer to order by phone , please call your nearest store directly to place your order .Click here to get the details of your nearest store.

8. How can I appear for NISM ED mock test? Where do I get sample questions for NISM Equity Derivatives Certification Examination?

Click here to take a mock test.

9. I have passed NISM-Series-VIII: Equity Derivatives Certification Examination. When will I receive the certificate?

Only the candidates who have produced their Income Tax Permanent Account Number (PAN) during registration would receive the NISM Certificate within two weeks of appearing for the examination.

Candidates who produced other identification proofs would not receive the NISM certificate. They would receive only the temporary mark sheet at the end of the examination.

10. I have not provided my PAN information at the time of taking the certification examination. How do I obtain the certificate?

Candidates who have not provided their PAN information during registration may furnish their PAN details to the Test Administrator they have registered with anytime after taking the examination.  After receiving and verifying PAN details, the candidate will receive the certificate from the Test Administrator they have registered with.  No additional payments are necessary for obtaining the certificate.

11. I have passed NISM-Series-VIII: Equity Derivatives Certification Examination and also provided PAN details. However, I have not received the certificate. Whom should I contact?

For non-receipt of certificate contact the test administrator you have registered with for this examination. The respective email ids are given below:

NISM: This email address is being protected from spambots. You need JavaScript enabled to view it.

12. What is the validity period of the certificate?

The certificate will be valid for 3 years from the date of the examination.

13. How do I renew my certificate?

To renew your current certificate, you need to appear for NISM CPE for Equity Derivatives or successfully pass the NISM-Series-VIII: Equity Derivatives Certification Examination before the expiry of such certificate.

14. Can I request for re-evaluation of NISM Certification Examinations?

NISM Policy on Re-evaluation of performance of candidates appearing for Certification Examination and resolution of doubts about the questions forming part of such examination, if any.

“No re-evaluation of the performance of candidates appearing for Certification Examination conducted by NISM (Mandatory & Non-Mandatory examination) is permitted since the assessment of answers, with respect to Certification Examinations questions which are in the nature of selection of only one correct answers from multiple choices offered, is carried out in an objective manner by in-built system architecture created for Certification Examination without any scope for human intervention and subjectivity element.

Also, considering the examination structure, no disclosure of the questions and/or answers is permitted as it will violate the confidentiality of the question bank, which is the essence of the examination.

In view of the above, no communication regarding re-evaluation, etc. will be entertained/serviced by NISM.”

Subject to the above, request/s received from a candidate for resolution of doubts about a question forming part of such examination will be considered as per the following policy.

  1. Candidate’s request/s will be considered only when he/she specifically mentions particular question or two which he/she thinks contain errors.  Claims/ to recheck more than two questions shall normally be not permitted unless substantive material is provided by the candidate as to why he/she considers errors in such questions.  In no case, claim/s to recheck all the questions appeared in his/her question paper shall be entertained.
  2. No request/s to disclose/discuss question/s and/or their answers shall be entertained as disclosure of the question/s will violate the essence of the question bank viz. breach the confidentiality/secrecy of the Question bank.
  3. Only those request/s made on-the-spot (before leaving the test center) will be considered for verification.
  4. When a valid request is received from a candidate at the Test Centre, it shall be forwarded by the respective TA to NISM. NISM’s team will look into claim relating to the contested question/s to verify whether there is a mistake in the question or answer.  If it is prima facie found that the question or answer contains a mistake, no score will be computed and consequently no score card will be issued then at the Test Centre.
  5. Such matter will then be escalated with the question / answer to the Committee with the details of the nature of error, the correct version of the question or contested correct answer and system recognized correct answer.  The Committee, after due diligence and proper scrutiny, will arrive at a conclusion whether the claim made by a candidate in relation to a question or answer is right.  Such conclusion will be recorded in writing and put up for formal approval to the authority of NISM.
  6. Score computation, kept in abeyance as per point 4, shall be carried based on the approval as per point – 5. Such score card will then be issued to the candidate by TA/NISM.
  7. Even though NISM endeavors best efforts and  has put in place a robust mechanism to review its question bank intermittently, attributable to continuous changes taking place emanating from dynamics of market, encompassing products and features, and its regulatory framework, there is a possibility of inadvertently escaping some updation and/or escaping indirect impact on some question/answer.  Therefore, to take care of such eventuality, the above process of entertaining request from the candidate in relation to the question/answer is put in place.
  8. The above policy and process will be subject to review from time to time and shall be binding and final in relation to any claim and/or matter when disposed off with the approval of the authority of NISM.

15. I already have NSE/BSE valid certificate for Equity Derivatives. Do I need to appear for NISM-Series-VIII: Equity Derivatives Certification Examination?

You do not need to take NISM-Series-VIII: ED examination, if you already have any of the following valid certificates as on the date of SEBI notification No. LAD-NRO/GN/2012-13/30/5474 dated 11th January 2013:

  1. NSE’s NCFM – Derivatives Market (Dealers) Module (DMDM), or
  2. BSE’s Certificate on Derivatives Exchange (BCDE)

However, in order to revalidate such certificate, you may either successfully complete NISM CPE for Equity Derivatives or successfully clear the NISM-Series-VIII: ED examination, before expiry of validity of such certificate.

 

Test Objectives

NISM-Series-VIII: Equity Derivatives Certification Examination

Unit 1: Basics of Derivatives

1.1 Basics of Derivatives

1.2 Know brief history of financial derivatives and list the factors influencing the growth of derivatives market globally

1.3 Know the history of derivatives in India and state the derivative products traded in India

1.4 List various stakeholders and their roles

1.5 Differentiate between OTC and exchange traded markets

1.6 Explain the economic purpose of derivatives

1.7 List various types of risks in derivatives

 

Unit 2: Understanding Index

2.1 Explain the term Index

2.2 Understand the economic purpose of index

2.3 List different types of Indices

2.4 List important attributes for construction of an Index and explain the term impact cost

2.5 Understand how index is constructed, maintained and revised

2.6 List major indices in India

2.7 Understand various direct and indirect applications of indices

 

Unit 3: Introduction to Forwards and Futures

3.1 Explain the term Forward contract, list essential features and major drawbacks of forward contracts

3.2 Explain the term Futures contract, list salient features and limitations of Futures contract

3.3 Compare the advantages and disadvantages of forwards and futures

3.4 Illustrate payoffs for Futures and draw payoff charts for Long and Short Futures

3.5 Explain the basics of cash and carry / Non-arbitrage model for futures pricing and describe the expectancy model of futures pricing

3.6 Understand the concept of convergence of cash and futures prices

3.7 Describe the basic difference in Commodity, Equity and Index Futures

3.8 Analyze the role of different players in futures market

3.9 Outline the use of futures contract as an effective instrument for managing risk

3.10 Explain different strategies for hedging, speculation and arbitrage in futures market

 

Unit 4 Introduction to Options

4.1 Explain the term option contract and understand the options terminology

4.2 Illustrate payoffs for Options, draw payoff charts for Long and Short Options and discuss the risk and return profile of option contracts

4.3 Understand options pricing fundamentals, interpret impact of each factor on option pricing for calls and puts and know Binomial and Black-Scholes option pricing models

4.4 Explain various terminologies of option greeks

4.5 Analyse the option trading from trader’s perspective

 

Unit 5 Option Trading Strategies

5.1 Explain the term option spread, illustrate various option spreads and draw payoff charts for various option spread strategies

5.2 Explain what straddle position is, elaborate what should be the market view when straddle is to be used and draw payoff charts for straddle

5.3 Explain what strangle position is, elaborate what should be the market view when strangle is to be used and draw payoff charts for strangle

5.4 Explain what covered call position is, elaborate what should be the market view when covered call is to be used and draw payoff charts for covered call

5.5 Explain what protective put position is, elaborate what should be the market view when protective put is to be used and draw payoff charts for protective put

5.6 Explain what collar position is, elaborate what should be the market view when collar is to be used and draw payoff charts for collar

5.7 Explain what butterfly spread position is, elaborate what should be the market view when butterfly spread is to be used and draw payoff charts for butterfly spread

Unit 6: Introduction to Trading Systems

6.1 Elaborate trading system in India, list different entities involved in trading system and explain their roles

6.2 Explain market timing of derivatives market, outline the corporate hierarchy of trading system and illustrate the client - broker relationship in derivatives Segment

6.3 List various order types and conditions

6.4 Explain the eligibility criteria of stocks for derivatives trading and continued eligibility criteria

6.5 Explain basic criteria for selection of an index for derivatives trading

6.6 Understand how an adjustment is made in position value and contract specification for various corporate actions

6.7 Know how daily newspapers can be used to track futures and options

 

Unit 7: Introduction to Clearing and Settlement system

7.1 List different types of clearing members, describe their roles and explain the eligibility norms of clearing members

7.2 Explain how to arrive at the open positions of trading members and custodial participants as part of clearing process

7.3 Know the settlement schedule, elaborate the process of arriving at settlement price and explain the settlement mechanism of futures and options contracts

7.4 Understand margining and mark to market under SPAN

7.5 List the salient features of risk containment measures on F&O segment, describe process of calculating position limits and know the effects of non-payment of margin

 

Unit 8: Legal and Regulatory Environment

8.1 Know important provisions of Securities Contract (Regulation) Act, 1956 and explain how SC(R)A aims at preventing undesirable transactions in securities

8.2 Define the role of SEBI in regulating derivatives market

8.3 List important rules and regulations on trading in derivatives market

8.4 List the eligibility criteria for membership on derivative segment

8.5 List the responsibilities of the clearing corporation and outline the main objectives of trade guarantee fund

8.6 Outline major recommendations of L C Gupta Committee and J R Verma Committee

 

Unit 9: Accounting and Taxation

9.1 Explain accounting treatment of futures and options contracts

9.2 Understand the taxation of derivative transactions and describe the applicability of STT on derivatives contracts

 

Unit 10: Sales Practices and Investors Protection Services

10.1 Discuss the importance of understanding risk profile of the investors and know the best practices in derivatives sales

10.2 Understand the investor grievance mechanism for trades in equity derivatives market

The examination seeks to create a common minimum knowledge benchmark for associated persons functioning as approved users and sales personnel of the trading member of an equity derivatives exchange or equity derivative segment of a recognized stock exchange.

The examination aims to enable a better understanding of various derivatives products available in equity derivatives markets, regulations and risks associated with the products and the exchange mechanisms of clearing and settlement. The examination also covers knowledge competencies related to the understanding of the financial structure in India and the importance of the different rules and regulations governing the Indian securities market, especially those related to the equity derivatives segment.

Examination Objectives:

On successful completion of the examination the candidate should:

  • Know the basics of the Indian equity derivatives market.
  • Understand the various trading strategies that can be built using futures and options on both stocks and stock indices.
  • Understand the clearing, settlement and risk management as well as the operational mechanism related to equity derivatives markets.
  • Know the regulatory environment in which the equity derivatives markets operate in India.

Assessment Structure:

The NISM-Series-VIII: ED Examination will be a 100 marks examination to be completed in 2 hours. It will have 100 questions of 1 mark each. There will be negative marking of 25% of the marks assigned to a question. The passing score for the examination is 60%.

Test Details:

Name of Module: NISM-Series-VIII: Equity Derivatives Certification Examination

Fees (Rs.)

Test Duration

(in minutes)

No. of Questions

Maximum Marks

Pass Marks*(%)

Certificate Validity

(in years)#

1500+

120

100

100

60

3

* Negative marking – 25% of the marks assigned to the question.
+ Payment gateway charges extra.
# Passing Certificate will be issued only to those candidates who have furnished/updated their Income Tax Permanent Account Number (PAN) in their registration details.

Curriculum

NISM-Series-VIII: Equity Derivatives Certification Examination

 

I. Basics of Derivatives

  1. Basics of derivatives
  2. Evolution of derivatives market
  3. Indian derivatives Market
  4. Market participants
  5. Types of derivatives markets
  6. Significance of derivatives
  7. Various risk faced by the participants in derivatives

 II. Understanding Index

  1. Introduction to Index
  2. Significance and economic purpose of Index
  3. Types of Indices
  4. Attributes of an Index and concept of impact cost
  5. Index management
  6. Major Indices in India
  7. Applications of Index

 III. Introduction to Forwards and Futures

  1. Introduction to Forwards and Futures contracts
  2. Payoff Charts for Futures contract
  3. Futures pricing
  • Cash and carry / Non-arbitrage model for futures pricing
  • Expectancy model of futures pricing
  • Concept of convergence of cash and futures prices
  1. Basic differences in Commodity, Equity and Index Futures
  2. Uses of futures
  • Role of different players in futures market
  • Use of futures contract as an effective instrument for managing risk
  • Strategies for hedging, speculation and arbitrage in futures market

 IV. Introduction to Options

  1. Basics of options
  2. Payoff Charts for Options
  3. Basics of options pricing and option Greeks
  • Fundamentals of options pricing
  • Overview of Binomial and Black-Scholes option pricing models
  • Basics of Option Greeks
  1. Uses of Options

 V. Option Trading Strategies

  1. Option spreads and their payoff charts
  2. Straddle: market view and payoff charts
  3. Strangle: market view and payoff charts
  4. Covered Call: market view and payoff charts
  5. Protective Put: market view and payoff charts
  6. Collar: market view and payoff charts
  7. Butterfly spread: market view and payoff charts

 VI. Introduction to Trading Systems

  1. Trading Systems, corporate hierarchy, order types and conditions
  2. Selection criteria of Stock for trading
  3. Selection criteria of Index for trading
  4. Adjustments for Corporate Actions
  5. Position Limits
  6. Using daily newspapers to track futures and options

 VII. Introduction to Clearing and Settlement system

  1. Clearing Members, their role and eligibility norms
  2. Clearing Mechanism and computation of open positions
  3. Settlement Mechanism for stock and index futures and options
  4. Understanding margining and mark to market under SPAN
  5. Risk Management features and position limits

 

VIII. Legal and Regulatory Environment

  1. Securities Contract (Regulation) Act, 1956
  2. Securities and Exchange Board of India Act, 1992
  3. Important rules and regulations in derivatives trading
  4. Regulation in clearing & settlement and risk management
  5. Major recommendations of the L C Gupta Committee
  6. Major recommendations of the J R Verma Committee

 IX. Accounting and Taxation

  1. Accounting of Futures and Options contracts
  2. Taxation of Derivative transaction in securities

 X. Sales Practices and Investors Protection Services

  1. Risk profile of the investors.
  2. Importance of profiling clients in sales process
  3. Importance of KYC
  4. Documents required by the investors to trade in Derivatives contract
  5. Best practices in derivatives sales
  6. Investors Grievance Mechanism

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