PGDM 311017

PGDQF3110117

pgpsm final

CSL311017

National Institute of Securities Markets
Communiqué/Press Release
 
 
NISM-Series-I: Currency Derivatives Certification Examination
NISM/Certification/Series-I: CD/2011/01 dated December 20, 2011

This is with reference to ‘NISM/Certification/Series-I: CD/2009/1 dated May 11, 2009,’ specifying that passing the NISM-Series-I: Currency Derivatives Certification Examination, is the requisite standard for the approved users and sales personnel of trading members of currency derivatives segments of recognised stock exchanges.

The examination is being offered to the candidates since May 15, 2009. In order to incorporate the market changes and suggestions received from various stakeholders, NISM had initiated the process of updating the NISM-Series-I: CD Examination. In this context, NISM will be launching the updated NISM-Series-I: CD Examination with effect from February 21, 2012.

The NISM-Series-I: CD Examination in its current format (as per the old syllabus/ workbook) will be available to the candidates till February 20, 2012 and will be replaced by the updated examination (as per the new syllabus/workbook) from February 21, 2012. Effective February 21, 2012, the old examination ceases to exist and only the new examination will be available to the candidates.

Effective February 21, 2012, the examination structure for the updated NISM-Series-I: CD Examination (as per new syllabus) is revised and will be as follows:

The examination will be of 100 marks, consisting of 100 questions of 1 mark each which needs to be completed in 2 hours time. A negative marking of 25% is applicable to each wrong answer and the passing score is 60%.

Details of the new examination, including the new test objectives and new workbook, can be downloaded from the websites of NISM, NSE, BSE and MCX-SX.

Details of the updated NISM-Series-I: Currency Derivatives Certification Examination are given in Annexure-I and Annexure-II of this communiqué/press release.

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

 

-sd-
M. L. Soneji
Registrar & Officiating Director
National Institute of Securities Markets

Copy to:

  1. CGM, MIRSD-2, SEBI
  2. CEO (Currency Segment), MCX-SX
  3. MD & CEO, NSE
  4. CRO, USE
  5. MD & CEO, BSE
  6. CEO, FEDAI

Enclosures: Annexure I and II

 

Annexure I – Syllabus Outline (w.e.f. February 21, 2012)
NISM-Series-I: Currency Derivatives Certification Examination
 

Objective of the Examination

The examination seeks to create a common minimum knowledge benchmark for persons working in the currency derivative segment, in order to enable a better understanding of currency markets and exchange traded currency derivatives products, better quality investor service, operational process efficiency and risk controls.

On successful completion of the examination the candidate should:

  • Know the basics of currency markets and specifically Exchange Traded Currency Derivatives markets.
  • Understand the trading, clearing and settlement mechanisms related to Exchange Traded Currency Derivatives markets and basic investment strategies that use currency futures and options products.
  • Know the regulatory environment in which the Exchange Traded Currency Derivatives markets operate in India.

Examination Specifications

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

Syllabus Outline with Weightages 

Chapter No. 

Chapter Name

Weightages (effective February 21, 2012)

1

Introduction to Currency Markets

12%

2

Foreign Exchange Derivatives

5%

3

Exchange Traded Currency Futures

6%

4

Strategies using currency futures

24%

5

Trading in currency futures

6%

6

Clearing, Settlement and Risk Management in currency futures

16%

7

Exchange traded currency options

15%

8

Accounting and Taxation

5%

9

Regulatory Framework for Currency Derivatives

6%

10

Codes of Conduct and Investor Protection Measures

5%

 

Total

100%

 
 

 

Annexure II – Test Objectives (w.e.f. February 21, 2012)
NISM-Series-I: Currency Derivatives Certification Examination
 
 

Unit 1: Introduction to Currency Markets

1.1       Brief history of foreign exchange markets

1.2       Major currency pairs

1.3       Overview of international currency markets

1.4       Basics of currency markets and peculiarities in India

            1.4.1    Currency pair

            1.4.2    Base Currency / Quotation Currency

            1.4.3    Interbank market and merchant market

            1.4.4    Two way quotes

            1.4.5    Appreciation/ Depreciation

            1.4.6    Market timing

            1.4.7    Price benchmarks:

            1.4.8    Price discovery

            1.4.9    RBI reference rate

1.5       Settlement or value date

1.6       OTC forward market

1.7       Exchange rate arithmetic- cross rate,

            1.7.1    EURINR

            1.7.2    GBPINR

            1.7.3    JPYINR

1.8       Impact of market economics on currency prices

1.9       Economic indicators

            1.9.1    Gross Domestic Product (GDP)

            1.9.2    Retail Sales

            1.9.3    Industrial Production

            1.9.4    Consumer Price Index (CPI)

            1.9.5    Nonfarm payrolls (NFP)

            1.9.6    Central bank meetings and key decisions

Unit 2: Foreign Exchange Derivatives

2.1 Derivatives – Definition

          Describe the evolution of derivatives

          Define a derivative as per SC(R)A and RBI Act

2.2 Derivative Products

          Briefly describe the various derivative products

             Forwards

             Futures

             Options

2.3 Growth Drivers of Derivatives

          Describe the factors that have driven the growth in derivatives market

2.4 Market Players

          List the various players in the Foreign Exchange market

          Describe how the Foreign Exchange market presents different opportunities for all the

          Players

2.5 Key Economic Functions of Derivatives

          Describe how

              Derivatives help in price discovery

              Derivatives market helps in transfer of risk

              Derivatives market is linked to underlying cash market

              Speculative trade impacts the Forex market

              Understand advantages and disadvantages of speculative trading in Foreign Exchange market

2.6 Exchange-Traded Vs. Over-the-Counter Derivatives

          Understand

              Differences between Exchange Traded and OTC Derivatives

              Features of OTC Derivatives that may give rise to instability in the financial system

Unit 3: Exchange Traded Currency Futures

3.1 Currency Futures - Definition

           Define:

               Futures Contract

               Currency Futures Contract

               Tick size

3.2 Futures Terminology

          Define:

              Spot price

              Futures price

              Contract cycle

              Value Date/Final Settlement Date

              Expiry date

              Contract size

              Initial margin

              Marking-to-market

3.3 Rationale behind Currency Futures

          Define the Standardized Items in a futures contract

          Understand the Rationale behind introducing Currency Futures in the Indian context

3.4 Distinction between Futures and Forward Contracts

          Understand

              Advantages of Futures Contracts

              Limitations of Futures Contracts

3.5 Interest Rate Parity and Pricing of Currency Futures

         Understand the relationship between spot price, future price and term to maturity

         Calculate one given the rest:

             Future price

             Spot price

             Term to maturity

         Calculate Forward or Spot rates given either one of them, interest rates and basis

Unit 4:  Strategies Using Currency Futures

4.1 Speculation in Futures Markets

          Understand the role of speculation in currency futures markets

4.2 Long Position in Futures

          Understand speculative transactions and payoffs using long position in futures

4.3 Short Position in Futures

          Understand speculative transactions and payoffs using short position in futures

4.4 Hedging Using Currency Futures

          Understand

              Concept of hedging

              Types of hedgers

              Proper size of the hedging position

              Possible hedging strategies that can be used by Corporate Bodies and Retail

              Customers and their  impact in various possible market situations

4.5 Trading Spreads Using Currency Futures

          Understand the concept of spread and the factors that influence its movement

4.6 Arbitrage

          Understand

              Concept of arbitrage

              Use of arbitrage in currency futures markets

          Calculate arbitrage opportunities under various conditions

Unit 5:  Trading in Currency Futures

5.1 Currency Futures Contract Specification

          Define the contract specifications for currency futures market segment

5.2 Trading Parameters

          Define and understand the trading parameters

             Base Price

             Closing Price

5.3 Tenors of Futures Contract

          Define and understand the tenor of a futures contract:

              Expiry Date

              Settlement Price

5.4 Entities in the Trading System

          Define and understand the role of various entities in the trading system for currency futures:

             Trading Members

             Clearing Members

             Trading-cum-Clearing Members

             Professional Clearing Members

             Participants

5.5 Types of Orders

          Define and understand the types of orders that can be entered in the trading system

          Understand the conditions that can be attached to orders that are entered including time / price and other conditions

          Understand applicability of price limit circuit filters

5.6 Mark-to-Market

          Understand

             Concept of mark- to- market

             Applicability of the concept in trading in currency futures

5.7 Position Limits

          Define maximum allowable open position limits for members trading in currency futures

          Understand the rules related to monitoring and enforcement of position limits in the currency futures market

          Understand the objectives and broad functioning of the surveillance systems and procedures of exchanges

Unit 6:  Clearing, Settlement and Risk Management in Currency Futures

6.1 Clearing Entities

          Define and understand role of various entities involved in clearing system for currency futures

6.2 Clearing Mechanism

          Understand the clearing mechanism

          Calculate the open positions and obligations of clearing members under various situations

6.3 Settlement Mechanism

          Understand the concept of MTM settlement

          Calculate end of day MTM under various situations

          Understand the final settlement for currency futures contract

6.4 Risk Management Measures

          Understand the salient features of the exchange risk management measures

6.5 Margin Requirements

          Understand the concept and applicability of

              Initial margin

              Portfolio based margin

              Calendar spread margin

              Extreme loss margin

              Liquid net worth

              Liquid assets

              Real time computation

              MTM settlement

          Understand

              Margin collection processes by Clearing Corporations

              Enforcement mechanisms employed by Clearing Corporations

Unit 7:  Exchange Traded Currency Options

7.1 Options – Definition, basic terms

         Option definition

         Call vs. Put option

         Bought vs. sold option

         Option premium

7.2 Difference between futures and options

         Rights vs. obligations

7.3 Options in financial market

7.4 Style of options

         European vs. American option

7.5 Moneyness of an option

         In the money

         At the money

         Out of the money

7.6 Basics of option pricing and option Greeks:

         Parameters impacting option pricing

         Definition of option greeks

7.7 Option pricing methodology

         Very brief mention of Black and Scholes and binomial pricing model

7.8 Option pay offs

         Pay off diagram of futures, put option, call option

7.9 Option strategies

        Vanilla option

        Combination options

7.10 Uses of currency options

        Practical application of options to real life business needs

7.11 Clearing, Settlement and Risk Management for currency options

         Contract design

         Clearing, Settlement, position limits

         Initial margin, Extreme loss margin, Net option value, Calendar margin

Unit 8:  Accounting And Taxation

8.1 Accounting

         Understand Accounting treatment for derivative contracts at:

             Inception of contract

             Daily Settlement

             Final Settlement

             In case of Default

8.2 Taxation of Derivative Transaction In Securities

         Understand tax treatment of profit/loss on derivative transaction in securities

Unit 9:  Regulatory Framework for Currency Derivatives

9.1 Securities Contracts (Regulation) Act, 1956 [SC(R)A]

          Know basic features of SC(R)A

          Define

             Securities

             Derivative

          Know the provisions of Section 18 A

9.2 Securities and Exchange Board of India Act, 1992

          Know

              Basic features of the SEBI Act, 1992

              Powers of SEBI

9.3 RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate

          Derivatives

              Know

                 Objectives of the Committee

                 Major recommendations of the Committee

9.4 Foreign Exchange Management Act, 1999 – Provisions

         Know

             Basic features

             Amendments that impacted introduction of currency futures trading

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

             Salient features of RBI Circular, ‘Guidelines on trading of Currency Futures in Recognised Stock / New Exchanges’, etc.

9.5 Regulatory Framework for Exchanges

           Know salient features of SEBI Regulations for Currency Derivatives Exchanges

9.6 Regulatory Framework for Clearing Corporations

           Know salient features of SEBI Regulations for Clearing Corporations

9.7 Governing Council of the Exchange and Clearing Corporation

           Know

               Requirement for separate Governing councils for Currency Derivatives exchanges/ segments

               Representation of Trading/ Clearing members on Governing Council

9.8 Eligibility Criteria for Members

           Know

               Entities eligible for membership of currency derivatives exchanges

               Eligibility criteria for various types of entities

Unit 10:  Codes of Conduct and Investor Protection Measures

10.1 Adherence to SEBI Codes of Conduct for Brokers/ Sub-Brokers

            Understand basic features of SEBI Code of Conduct for Brokers

            Understand basic features of SEBI Code of Conduct for Sub-brokers

10.2 Adherence to Codes of Conduct Specific to Exchange Traded Currency Derivatives Segment

            Understand basic features of Codes of Conduct for Trading Members

10.3 Grievance Redressal Mechanism for Investors

            Understand

                Investor Grievance Redressal Process

                Nature of complaints considered by exchanges

                Arbitration Mechanism at exchanges 

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