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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

To explain the term derivatives

1.2 Derivatives Market – History & Evolution

To study the history of derivatives

To explain the factors influencing the growth of derivatives market globally

1.3 Indian Derivatives Market

            To study the history of derivatives in India

            Understanding of available derivative products suite in India

1.4 Market Participants

List various stakeholders and their roles

1.5 Types of Derivatives market

Differentiate between OTC and Exchange Traded Market

1.6 Significance of Derivatives

Explain economic purpose of derivatives 

1.7 Various risk faced by the participants in derivatives

            List types of risk in derivatives

  Unit 2: Understanding Index

2.1 Introduction to Index

            Explain the term Index

2.2 Significance of Index

            Understand economic purpose of index

2.3 Types of Indices

List different types of Indices

2.4 Attributes of an Index

List important attributes for construction of an Index

            Explain the term impact cost

2.5 Index management

            Understand how index is constructed, maintained and revised

2.6 Major Indices in India

            List various indices in India

2.7 Applications of Index

Understand various direct and indirect applications of indices

Unit 3: Introduction to Forwards and Futures

3.1 Introduction to Forwards and Futures contracts

Explain the term Forward contract

List essential features of forward contract

Illustrate major drawbacks in Forward contracts

Explain the term Futures contract

List salient features of Futures contract

List and explain terminologies used in Futures contract

Illustrate various limitations in Futures

Compare the advantages and disadvantages of forwards and futures

3.2 Payoff Charts for Futures contract

Illustrate payoffs for Futures

Draw payoff charts for Long and Short Futures

3.3 Futures pricing

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

Describe the expectancy model of futures pricing

            Understand concept of convergence of cash and futures prices

3.4 Commodity, Equity & Index Futures

Explain the basic difference in Commodity, Equity and Index Futures

3.5 Uses of futures

Analyze the role of different players in futures market

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

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

  Unit 4 Introduction to Options

4.1 Basics of options

Explain the term option contract

List and explain various terms of options

4.2 Payoff Charts for Options

Illustrate payoffs for Options

Draw payoff charts for Long and Short Options

Discuss the risk and return profile of option contracts

4.3 Basics of options pricing and option Greeks

Understand options pricing fundamentals

Interpret impact of each factor on Option pricing for Call and Put Options

Give an overview of Binomial and Black-Scholes option pricing models

Explain the term Option Greeks

4.4 Uses of Options

Analyse the Option trading from trader’s perspective

        

Unit 5 Option Trading Strategies

5.1 Option spreads

Explain the term option spread

Illustrate various option spreads

Draw payoff charts for various option spread strategies

5.2 Straddle

            Explain what straddle position is 

Elaborate what should be the market view when Straddle is to be used (Long/ Short)

Draw Net Payoff Chart for Straddle

5.3 Strangle

Explain what is strangle position

Elaborate what should be the market view when Strangle is to be used (Long/ Short)

Draw Net Payoff Chart for Strangle

5.4 Covered Call

Explain what Covered Call position is

Elaborate what should be the market view when Covered Call is to be used

Draw Net Payoff Chart for Covered Call

5.5 Protective Put

Explain what Protective Put position is

Elaborate what should be the market view when Protective Put is to be used

Draw Net Payoff Chart for Protective Put

5.6 Collar

Explain what Collar position is

Elaborate what should be the market view when Collar is to be used

Draw Net Payoff Chart for Collar

5.7 Butterfly spread

Explain what Butterfly spread position is

Elaborate what should be the market view when Butterfly spread is to be used

Draw Net Payoff Chart for Butterfly spread

  Unit 6: Introduction to Trading Systems

6.1 Trading System

Elaborate trading system in India

List different entities involved in trading system and explain their roles

Explain market timing of derivatives market

Outline the corporate hierarchy of trading system

Illustrate the Client Broker Relationship in Derivatives Segment

List various order types and conditions

List various windows displayed on the trader workstation

List various futures and options market instruments

6.2 Selection criteria of Stock for trading

Explain the eligibility criteria of          

Stocks

Continued eligibility

Re-introduction of excluded stocks

Derivatives trading especially on account of corporate restructuring

6.3 Selection criteria of Index for trading

Explain basic criteria for Index trading as a Derivative contract

6.4 Adjustments for Corporate Actions

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

6.5 Position Limits

Explain the position limits at various hierarchy levels

6.6 Using daily newspapers to track futures and options

Unit 7: Introduction to Clearing and Settlement system

7.1 Clearing Members

List different types of clearing members and their roles

Explain the eligibility norms of clearing members

7.2 Clearing Mechanism

Explain how to arrive at the open positions of trading members and custodial participants

7.3 Settlement Mechanism

Explain the Settlement schedule

Elaborate the process of arriving at Settlement Price

Explain the settlement mechanism of Futures contract on Index and Stocks

Explain the settlement mechanism of Option contract on Index and Stocks

7.4 Understanding margining and mark to market under SPAN

7.5 Risk Management

List the salient features of risk containment measures on F&O segment

Describe process of calculating position limits

List and elaborate effects of non-payment of margin

 Unit 8: Legal and Regulatory Environment

8.1 Securities Contract (Regulation) Act, 1956

Explain provisions of SC(R)A relevant to Derivatives market

Explain how SC(R)A aims at preventing undesirable transactions in securities

8.2 Securities and Exchange Board of India Act, 1992

Define the role of SEBI in regulating Derivatives market

8.3 Regulation in Trading

List important rules and regulations on trading in Derivatives market

8.4 Regulation in Clearing & Settlement and Risk Management

List the eligibility criteria for membership on derivative segment

Explain the mode of payment of margins

Explain the salient features of cross margining

            List the responsibilities of the clearing corporation

            Outline the main objectives of trade guarantee fund

8.5 Outline major recommendations of the L C Gupta Committee

8.6 Outline major recommendations of the J R Verma Committee

  Unit 9: Accounting and Taxation

9.1 Accounting

Explain accounting of Futures and Options contracts

9.2 Taxation of Derivative transaction in securities

Explain the treatment of Profit/ Loss on Derivatives transactions

Describe applicability of Securities Transaction Tax on Derivatives contracts

  Unit 10: Sales Practices and Investors Protection Services

10.1 Understanding risk profile of the investors

Discuss what does an investor perceive and understand by the word ‘Risk’

Understand importance of profiling clients in sales process

List the importance of KYC

List the documents required by the investors to trade in Derivatives contract

Best practices in derivatives sales

10.2 Investors Grievance Mechanism

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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