PGDM 311017

PGDQF3110117

pgpsm final

CSL311017

National Institute of Securities Markets
Communiqué/Press Release
 
NISM-Series-VIII: Equity Derivatives Certification Examination
NISM/Certification/Series-VIII: ED/2012/01 dated September 20, 2012

In exercise of the powers conferred by sub-regulation (3) of Regulation 7 of the Securities and Exchange Board of India (Certification of Associated Persons in Securities Markets) Regulations 2007, National Institute of Securities Markets (NISM), in consultation with the Securities and Exchange Board of India, hereby specifies the NISM-Series-VIII: Equity Derivatives Certification Examination, as 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.

The NISM-Series-VIII: Equity Derivatives Certification Examination, offered by NISM, will be available from October 8, 2012.

Details of NISM-Series-VIII: Equity Derivatives Certification Examination are given in Annexure-I and Annexure-II attached to this communiqué/press release.

The text of these Annexures and the registration details are available at www.nism.ac.in.

-sd-
G. P. Garg
Registrar
National Institute of Securities Markets

Copy to:

  1. ED, MIRSD, SEBI
  2. CEO, BSE
  3. MD & CEO, MCX-SX
  4. MD, NSE

Enclosures: Annexure I and II

 

Annexure I – Syllabus Outline

 

NISM-Series-VIII: Equity Derivatives Certification Examination

 

 

Objective of the Examination

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.

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.

 Examination Specifications

This is a computer-based examination with multiple choice questions.
The examination consists of 100 questions of 1 mark each adding to 100 marks.
The examination should be completed in 2 hours.
There shall be negative marking of 25% of the marks assigned to the question for each wrong answer.
The passing score for the examination is 60 marks.

Syllabus Outline with Weightages 

Unit 1

Basics of Derivatives

8 marks

Unit 2

Understanding Index

2 marks

Unit 3

Introduction to Forwards and Futures

25 marks

Unit 4

Introduction to Options

25 marks

Unit 5

Option Trading Strategies

3 marks

Unit 6

Introduction to Trading Systems

4 marks

Unit 7

Introduction to Clearing and Settlement System

13 marks

Unit 8

Legal and Regulatory Environment

15 marks

Unit 9

Accounting and Taxation

3 marks

Unit 10

Sales Practices and Investor Protection Services

2 marks


 

Annexure II – 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

 

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