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          


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

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