Test Objectives-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 Forward
3.1 Introduction to Forwards
– 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 forward
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 c
– Describe the expectancy
– 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 f
– 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
– 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
– 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 b
– 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
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
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
– 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

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
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