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Common Derivatives

1. Who can take NISM-Series-XIII: Common Derivatives Certification Examination?

NISM has launched the NISM-Series-XIII: Common Derivatives Certification Examination as an "additional choice" which the candidates may choose to take instead of appearing for the Currency Derivatives (Series-I), Interest Rate Derivatives (Series-IV) and NISM’s Equity Derivatives (Series-VIII) examinations individually.

The following persons can take NISM-Series-XIII: Common Derivatives Certification Examination:

  1. All approved users and sales personnel of trading members of currency derivatives, interest rate derivatives and equity derivatives segments of recognized stock exchanges
  2. Interested students/professionals
  3. Any other individuals

For more details, please refer to NISM’s Communiqué / Press Release for NISM-Series-XIII: Common Derivatives Certification Examination (NISM/Certification/Series-XIII: COM/2014/01 dated December 9, 2014) available in the “Circulars” section of NISM website.

 

2. How can I register for NISM-Series-XIII: Common Derivatives Certification Examination?

At present, the NISM-Series-XIII: Common Derivatives Certification Examination is available at NISM Test Centers only. Candidates can register for this exam at: https://certifications.nism.ac.in/nismaol/

 

3. What is the fee structure?

The fees for "NISM-Series-XIII: Common Derivatives Certification Examination" is Rupees Three Thousand only (Rs. 3000/-).

 

4. What is the assessment structure?

The examination will be of 150 marks, will have 150 questions, and should be completed in 3 hours. There will be negative marking of 25% of the marks assigned to a question. The passing score for the examination is 60% (which is equivalent to 90 marks out of the total marks of 150).

 

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

The candidate has to prepare from the workbooks of NISM-Series-I: Currency Derivatives Certification Examination, NISM-Series-IV: Interest Rate Derivatives Certification Examination and NISM-Series-VIII: Equity Derivatives Certification Examination. There is no separate workbook for this examination as this is a combined examination of the above mentioned three examinations (CD, IRD and ED). You will receive a soft copy of the above mentioned workbooks after enrolment for this examination. For non-receipt of soft copy of the workbook/study material, you may contact NISM at: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

6. 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.

 

7. I have passed NISM Common 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.

 

8. 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 (NISM) anytime after taking the examination.  After receiving and verifying PAN details, the candidate will receive the certificate from the Test Administrator (NISM).  No additional payments are necessary for obtaining the certificate.

 

9. I have passed NISM Common Derivatives Certification Examination and also provided PAN details, however I have not received a certificate. Whom should I contact?

For non-receipt of certificate, please contact NISM at: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

10. What is the validity period of the certificate?

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

 

11. How do I renew my certificate?

To renew your current certificate, you need to appear for NISM CPE for Common Derivatives, when it is made available, or successfully pass the NISM Common Derivatives Certification Examination before the expiry of such certificate.

 

12. 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.

1. Basics of Derivatives

1.1 Explain the term “derivatives”

1.2 Study the history and evolution of derivatives market and explain the factors influencing the growth of derivatives market globally

1.3 Know the history of Indian derivatives Market and understand the available derivative products in India

1.4 List various stakeholders (market participants) and their roles in the derivatives markets

1.5 Differentiate between OTC and Exchange Traded Market

1.6 Explain the significance and economic purpose of derivatives 

1.7 List various risks faced by the participants in derivatives

 

2. Introduction to the Underlying Markets

2.1 Introduction to Equity Markets and Indices

Provide a brief introduction to equity markets

Understand the significance and economic purpose of Index

List important attributes for construction of an Index

Understand how index is constructed, maintained and revised

List various indices in India

Understand various direct and indirect applications of indices

Explain the term impact cost

2.2 Introduction to Currency Markets

Know the history of foreign exchange markets

Know the most popular and highly traded currency pairs in the world

Provide an overview of international currency markets

Understand the peculiarities of currency markets in India

Understand the meaning of settlement or value date

Differentiate between features of Over-The-Counter (OTC) and Exchange-traded derivatives

Know the calculations involved in Exchange rate arithmetic (cross rate calculation)

Understand the impact of market economics on currency prices

List the important economic indicators for the markets

List various market players in the foreign exchange market

2.3 Introduction to Fixed-income Securities

Overview of financial markets and grouping of markets based on asset type

Overview of fixed-income securities and economic role of debt markets

Know the classification of fixed-income securities based on cash flow pattern, tenor, etc.

Understand the difference between fixed-income security and fixed-return security

Compare Debt securities versus equity securities

Understand debt market and equity market as components of capital market

Explain the importance of debt market for the economic development of a country and know the relative size of debt and equity markets globally and in India

2.4 Introduction to “Interest Rate”

Understand the concept of interest rate and interest rate as rent on money

Explain the importance of risk-free interest rate as the basis and benchmark for all valuations and differentiate between risk-free interest rate and risky interest rate

Understand the difference between nominal rate of interest and real rate of interest

Understand term structure (yield curve), its shape, shifts and interpretation

Understand the conversion of interest rate into interest amount: effect of payment frequency, compounding frequency, day count basis and business day adjustment

Explain the concept of accrued interest

2.5 Return and Risk Measures for Debt Securities

Define spot rate (or zero rate) and holding period return

Define and calculate various measures of return: coupon, current yield, yield-to-maturity

Describe the relation between spot rate, bond price and yield-to-maturity

Define and calculate various measures of risk: Macaulay Duration, Modified Duration, Rupee Duration, Price value of a basis point (PVBP) and Convexity

 

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 Forwards and Futures on Equities

3.2.1 Payoff Charts for Futures contract

Illustrate payoffs for Futures

Draw payoff charts for Long and Short Futures

3.2.2 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

3.2.3 Basic differences in Commodity, Equity and Index Futures

3.3 Exchange Traded Currency Futures

3.3.1 Terminology: Currency futures, Spot price, Futures price, Contract cycle, Value date/Final settlement date, Expiry date, Contract size, etc.

3.3.2 Know the concepts of Initial margin and Marking-to-market

3.3.3 Understand the rationale behind currency futures

3.3.4 Introduction of currency futures in India

3.3.5 Explain the concept of Interest rate parity and pricing of currency futures

3.4 Interest Rate Futures

3.4.1 Know the underlying assets of permissible interest rate derivative contracts in India

3.4.2 Know the market lot / contract amount, contract months, expiry dates of exchange traded derivatives contracts

3.4.3 Understand tick size and its relation to the minimum change in the contract value

3.4.4 Describe the procedure for determining the daily settlement price and final settlement price

3.4.5 Discuss the delivery aspects of interest rate derivatives contracts including conversion factor, invoice amount, cheapest-to-deliver bond

 

4. Strategies Using Futures

4.1 Strategies using Equity 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

4.2 Strategies Using Currency Futures

Construct long position in Currency futures

Construct short position in Currency futures

Know how hedging can be done using Currency futures

Understand how one can trade the spreads using Currency futures

Know arbitrage opportunities under various conditions

4.3 Strategies Using Interest Rate Futures

Explain speculative / trading strategies with suitable examples

Explain Hedging strategies for managing interest rate risk in loans and bond investments like by adjusting the Duration with futures

List and describe risks associated with futures: basis risk, yield curve spread risk and market liquidity risk

 

5. Introduction to Options – Options on Equities and Currencies

5.1 Know the basics of options

5.2 Understand the concept of option premium

5.3 Understand Call and Put option

5.4 Know Bought and Sold option

5.5 Distinguish between European vs. American option

5.6 Understand “Moneyness” of an option

5.7 Explain option pricing (Binomial and Black-Scholes) and option Greeks

5.8 Illustrate payoff charts for options

5.9 Understand the uses of Options

 

6. Option Trading Strategies – Strategies using Equity Options and Currency options

6.1 Option spreads and their payoff charts

Explain the term option spread

Illustrate various option spreads

Draw payoff charts for various option spread strategies

6.2 Straddle: market view and payoff charts

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

6.3 Strangle: market view and payoff charts

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

6.4 Covered Call: market view and payoff charts

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

6.5 Protective Put: market view and payoff charts

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

6.6 Collar: market view and payoff charts

Explain what Collar position is

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

Draw Net Payoff Chart for Collar

6.7 Butterfly spread: market view and payoff charts

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

 

7. Introduction to Trading, Clearing, Settlement & Risk Management

7.1 Introduction to Trading Systems

Understand the trading systems, corporate hierarchy, order types and conditions

Discuss the Selection criteria of Stocks and Indices for trading

Know the contract specification, trading parameters and position limits

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

Know the operational guidelines of Exchanges

Know the surveillance systems and procedures of exchanges

7.2 Clearing, Settlement and Risk Management in Currency Futures

Describe clearing members, their role and eligibility norms

Understand the Clearing Mechanism and computation of open positions

Understand the Settlement Mechanism for futures and options contracts

Understand margining and mark to market (MTM) under SPAN

Know the Risk Management features, position limits and net worth requirements

Know the margin collection process of Clearing Corporations and delivery procedure

 

8. Legal and Regulatory Environment

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

8.2 Define the role of SEBI in regulating Derivatives market and know the features of Securities and Exchange Board of India Act, 1992

8.3 List important rules and regulations on trading in Derivatives market

8.4 Know the regulations in clearing & settlement and risk management

8.5 Outline major recommendations of the L C Gupta Committee

8.6 Outline major recommendations of the J R Verma Committee

8.7 Outline the recommendations of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives

8.8 Know the provisions of Foreign Exchange Management Act, 1999

8.9 Understand the salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008

8.10 Understand the salient features of RBI Circular ‘Guidelines on trading of Currency Futures in Recognized Stock / New Exchanges’

8.11 Understand the salient features of SEBI Regulations for Currency Derivatives Exchanges

8.12 Know the eligibility criteria for membership of currency derivatives exchanges

8.13 Explain the role of various regulators in Bond and Interest Rate Derivatives Market

8.14 Know the restrictions and limits applicable to Resident and Non-resident Investors in Interest Rate Derivatives Markets

8.15 List the regulatory reporting requirements for Interest Rate Derivatives Markets

8.16 Define the role of FIMMDA in fixed income and derivatives markets in India

 

9. Accounting and Taxation

9.1 Explain accounting treatment for derivative contracts

9.2 Understand the taxation of derivative transaction in securities

9.3 Explain the tax treatment of profit/loss on derivative transaction in securities

 

10. Sales Practices, Code of Conduct and Investor Protection Measures

10.1 Understand the basic features of SEBI Codes of Conduct for Brokers and Sub-Brokers

10.2 Understand the importance of risk profiling of clients in sales process

10.3 Understand the importance of KYC and know the documents required by the investors to trade in Derivatives contract

10.4 Know the best practices in derivatives sales

10.5 Understand the Grievance redressal mechanism available to the investors

10.6 Understand the nature of complaints considered by exchanges

10.7 Explain the Arbitration mechanism at exchanges

NISM-Series- XIII: Common Derivatives Certification Examination w.e.f  June 1, 2017

The examination seeks to create a common minimum knowledge benchmark for:

  • The approved users and sales personnel of the trading members of the Currency Derivatives Segment of a recognised stock exchange and trading in Currency Derivatives
  • The approved users and sales personnel of the trading members who are registered as such in the Currency Derivatives Segment of a recognized stock exchange and trading in Interest Rate Derivatives
  • The associated persons functioning as approved users and sales personnel of the trading members 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 the three derivatives segments (i.e., Equity Derivatives, Currency Derivatives and Interest Rate Derivatives), regulations and risks associated with these 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 exchange traded derivatives.

Examination Objectives:

On successful completion of the examination the candidate should:

  • Know the basics of the Indian derivatives market (covering Equity Derivatives, Currency Derivatives and Interest Rate Derivatives).
  • Understand the various trading and hedging strategies that can be built using futures and options.
  • Understand the clearing, settlement and risk management as well as the operational mechanism related to the derivatives markets.
  • Know the regulatory environment in which the derivatives markets operate in India.

 

Assessment Structure:

The NISM-Series-XIII: Common Derivatives Certification Examination will be a 150 marks examination to be completed in 3 hours. It will have 150 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% which is 90 marks out of total marks of 150.

 

Test Details:

Name of Examination: NISM-Series-XIII: Common Derivatives Certification Examination

Fees (Rs.)

Test Duration (in minutes)

No. of Questions

Maximum Marks

Pass Marks* (%)

Certificate Validity (in years)#

3000+

180

150

150

60% or 90 marks

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.

 

For more details, please refer to NISM’s Communiqué / Press Release for NISM-Series-XIII: Common Derivatives Certification Examination (NISM/Certification/Series-XIII: COM/2014/01 dated December 9, 2014) available in the “Circulars” section of NISM website.

1. Basics of Derivatives

A. Introduction to derivatives

B. History and evolution of derivatives market

C. Factors influencing the growth of derivatives market

D. History of Indian derivatives Market and available derivative products in India

E. Market participants and their roles in the derivatives markets

F. OTC and Exchange Traded Market

G. Significance and economic purpose of derivatives 

H. Risks associated with financial derivatives

 

2. Introduction to the Underlying Markets

A. Introduction to Equity Markets and Equity Indices

B. Introduction to Currency Markets

C. Introduction to Fixed-income Securities

D. Introduction to “Interest Rate” concept and yield curve

E. Return and Risk Measures for Debt Securities (Current yield, YTM, Duration, PVBP, Convexity, etc.)

 

3. Introduction to Forwards and Futures

A. Introduction to Forwards and futures contracts

B. Forwards and Futures on Equities

C. Payoff Charts for Futures contract

D. Futures pricing

E. Basic differences in Commodity, Equity and Index Futures

F. Exchange Traded Currency Futures

G. Concept of Interest rate parity and pricing of currency futures

H. Interest Rate Futures

I.  Delivery aspects of IRD contracts including conversion factor, invoice amount, cheapest-to-deliver bond

 

4. Strategies Using Futures

A. Strategies using Equity Futures

B. Strategies for hedging, speculation and arbitrage in futures market

C. Strategies Using Currency Futures

D. Strategies Using Interest Rate Futures

 

5. Introduction to Options – Options on Equities and Currencies

A. Basics of options

B. Concept of option premium

C. Call and Put option

D. Buying and selling (writing) options

E. European vs. American option

F. Moneyness of an option

G. Binomial and Black-Scholes option pricing models and option Greeks

H. Payoff charts for options

I.  Uses of Options

 

6. Option Trading Strategies – Strategies using Equity Options and Currency options

A. Option spreads and their payoff charts

B. Straddle: market view and payoff charts

C. Strangle: market view and payoff charts

D. Covered Call: market view and payoff charts

E. Protective Put: market view and payoff charts

F. Collar: market view and payoff charts

G. Butterfly spread: market view and payoff charts

 

7. Introduction to Trading, Clearing, Settlement & Risk Management

A. Introduction to Trading Systems

B. Clearing Mechanism and computation of open positions

C. Settlement Mechanism for futures and options contracts

D. Margining and mark to market (MTM) under SPAN

E. Risk Management features, position limits and net worth requirements

F. Margin collection process of Clearing Corporations and delivery procedure

 

8. Legal and Regulatory Environment

A. Provisions of Securities Contract (Regulation) Act, 1956

B. Role of SEBI in regulating Derivatives market and SEBI Act, 1992

C. Important rules and regulations on trading in Derivatives market

D. Regulations in clearing & settlement and risk management

E. Outline major recommendations of the L C Gupta Committee

F. Outline major recommendations of the J R Verma Committee

G. RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives

H. Provisions of Foreign Exchange Management Act, 1999

I.  Salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008

J. Features of RBI Circular ‘Guidelines on trading of Currency Futures in Recognized Stock / New Exchanges’

K. Salient features of SEBI Regulations for Currency Derivatives Exchanges

L.  Explain the role of various regulators in Bond and Interest Rate Derivatives Market

M. Regulatory reporting requirements for Interest Rate Derivatives Markets

N. Role of FIMMDA in fixed income and derivatives markets in India

 

9. Accounting and Taxation

A. Accounting treatment for derivative contracts

B. Taxation of derivative transaction in securities

 

10. Sales Practices, Code of Conduct and Investor Protection Measures

A. Basic features of SEBI Codes of Conduct for Brokers and Sub-Brokers

B. Importance of risk profiling of clients in sales process

C. Importance of KYC and required documentation for investors to trade in Derivatives contract

D. Best practices in derivatives sales

E. Grievance redressal mechanism available to the investors

F. Nature of complaints considered by exchanges

G. Arbitration mechanism at exchanges

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