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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

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