Test Objectives

NISM-Series-XII: Securities Markets Foundation Certification Examination

Unit 1: Understanding Securities Markets and Performance

1.1. Understand the role of securities markets
1.1.1. Understand how securities markets facilitate allocation of capital from supply side to demand side
1.2. Understand the meaning of securities and securities markets
1.2.1. List the key functions of securities markets participants
1.3. Describe the structure of securities markets and role of its participants
1.3.1. Investors (Individual/ Institutional)
1.3.2. Issuers (Corporate/ Government/ Local/ Municipal)
1.3.3. Intermediaries
1.3.4. Regulators (SEBI/ RBI/ MCA/ MoF/ IBBI/ IRDAI)
1.4. Understand the Role of Securities Markets
1.5. List the various technological advancements brought in securities market and explain its criticality (Cyber-security/ Cyber resilience/ Sandboxes etc)

Unit 2: Securities – Types, Features and Concepts relating to asset allocation and investing

2.1. List out different securities available in the securities market
2.1.1. Equity
2.1.2. Debt
2.1.3. Hybrid
2.1.4. Commodities
2.1.5. Derivatives
2.1.6. Mutual Funds
2.1.7. Structured Products
2.1.8. Distressed Securities
2.2. Understand the factors that influence the choice between equity and debt capital for issuers
2.3. Know the characteristics and role of equities
2.3.1. Explain the features of equity capital
2.3.2. List the types of equity capital with distinct features (Preference shares/ Differential Voting Rights)
2.3.3. Explain the risk and return from investing in equity
2.4. Know the characteristics and role of debt securities
2.4.1. Explain the basic features of debt instrument
2.4.2. List the types and structures of debt instruments
2.4.3. Distinguish between various types, tenors and structures of debt instruments
2.4.4. Explain the classification of debt market instrument
-Describe various types of money market instruments and their features
-Describe government securities and their features
-Describe corporate bonds and debentures and their features
2.4.5. Understand the benefits and risks of investing in debt securities
2.5. Describe the factors that influence the choice between equity and debt for investors
2.6. Know the types and features of hybrid securities
2.6.1. Convertible debentures
2.6.2. Depository Receipts (IDR, GDR and ADR)
2.6.3. Foreign Currency Convertible Bonds (FCCB)
2.6.4. Warrants
2.7. Know the characteristics and role of commodities
2.8. Know the characteristics and role of derivatives
2.8.1. Explain features of equity derivatives
2.8.2. Explain the features of commodity derivatives
2.8.3. Explain the features of interest rate derivatives
2.8.4. Explain the features of currency derivatives
2.9. Explain the concepts and benefits of asset allocation process and diversification
2.10. Understand various underlying factors while investing
2.10.1. Managing risk and return requirements
2.10.2. Aligning investment horizon to selection of investment products/ asset class
2.10.3. Aligning portfolio features to investor’s needs
2.10.4. Ease of investments and exits
2.10.5. Flexibility in investments
2.10.6. Availability of information and updates
2.11. Describe the various aspects of investing in equity
2.11.1. Understand the concepts and differences between price and intrinsic value
2.12. Describe the equity investing process
2.12.1. Define and describe the commonly used terms in equity investing with appropriate illustrations
-Price Earning Multiple (PE multiple)
-Price to Book Value (PBV)
-Dividend Yield
2.12.2. Explain the importance of equity research and its role in evaluation of equities
2.12.3. Describe the concepts and elements of equity analysis and valuation
-Understand the fundamental and technical analysis
-Understand the Discounted Cash Flow and Relative Valuation models
2.13. Understand the concepts and terms relating to debt securities with appropriate illustrations
-Time Value of money
-Yield and Price
-Yield to maturity (YTM)
2.14. Describe in brief the debt investing process

Unit 3: Primary Markets

3.1. Understand the nature and functions of the primary market
3.1.1. Define primary markets
-Primary markets for equities
-Primary markets for debt (Corporate/ G-secs)
-Primary markets for other securities (Depository Receipts/ Warrants)
3.1.2. List and describe the functions of the primary markets
3.2. Discuss Primary vs Secondary Markets
3.3. List the different intermediaries in Primary Market for both equity and debt (MB/ RTA/ Underwriter/ Bankers/ SCSB/ Depository/ BRLM/ PD …)
3.4. Discuss various types of issues in primary markets (Public issue, Private Placement, Preferential issue, Rights & Bonus issues)
3.5. List the categories of issuers in the primary markets
3.6. List the types of investors in the primary markets
3.7. Discuss the regulatory framework for primary markets
3.7.1. List the key regulations for public issue of shares
-Eligibility criteria
-Promoters’ Contribution
-Minimum offer to public
-Period of subscription
-Underwriting
-Dematerialization of shares
-Credit ration of IPOs
3.8.Describe the types of public issues of equity shares
3.8.1. Define and differentiate initial public offer (IPO) and follow on public offer
3.8.2. Define and differentiate fresh issue of equity shares and offer for sale
3.9. Describe the pricing process in a public issue of shares
3.9.1. Fixed price issue
3.9.2. Book built issue
3.10. Describe the public issue process of equities
3.10.1. List the constituents in a public issue and their roles
3.11. Define and list the features of a prospectus
3.12. Describe the process of applying to a public issue
3.12.1. Explain the basis of allotment
3.12.2. Discuss the role of Green shoe option
3.13. Understand the process and importance of listing of public issues
3.14. Describe the rights issues in equity
3.15. Understand the regulatory requirements in public issue of debt securities
3.15.1. Eligibility criteria
3.15.2. Base issue size
3.15.3. Offer document and Shelf prospectus
3.15.4. Listing of securities
3.15.5. Credit rating
3.15.6. Minimum subscription
3.15.7. Dematerialization
3.15.8. Debenture Trustees
3.15.9. Debenture redemption reserves
3.15.10. Creation of security
3.15.11. Coupon rate
3.16. Describe the public issue process of debt
3.17. Describe private placements in equity and debt
3.17.1. Qualified Institutions Placement (QIP)
3.17.2. Electronic system for debt book building

Unit 4: Secondary Markets

4.1. Describe the role and list the functions of the secondary markets
4.2. List the types of secondary markets available for different securities
4.2.1. Secondary market for equities (stock exchanges)
4.2.2. Secondary market for debt securities (CCIL/ OTC/ Stock Exchanges)
4.2.3. Secondary market for commodities (mandis)
4.3. Understand the market infrastructure institutions (MIIs) and describe the functions of the market participants
4.3.1. Stock exchanges and their members
4.3.2. Investors
4.3.3. Intermediaries involved in trading, clearing and settlement processes
4.3.4. Depositories and Depository Participants
4.3.5. Clearing Corporation
4.3.6. Regulator
4.3.7. MII Governance norms
4.4. Describe the role of stock brokers and authorized persons and explain the process for client acquisition
4.4.1. Understand the Client acquisition process by a trading member
4.4.2. Understand the purpose of 3-in-1 account
4.4.3. Discuss the role and importance of Power of Attorney
4.5. Understand the trade execution process and explain related concepts
4.5.1. Electronic Trading system
-Algo trading and Co-location
-Internet based trading
-Mobile Trading
4.5.2. Orders and their types
4.5.3. Trade and order execution
-Price Time Priority
-Active and Passive orders
4.5.4. Block deals and Bulk deals
4.5.5. Explain the concept and role of circuit breakers
4.5.6. Contract note
4.5.7. Cost of trading (user charges/ statutory charges/ bid-ask spread)
4.6. Understand the clearing and settlement process of a trade
4.6.1. Explain the concepts of delivery and squaring off
4.6.2. Determine settlement obligation
4.6.3. Understand the concepts of settlement cycle, pay-in and pay-out
4.6.4. Explain the importance and types of margin requirements
4.6.5. Describe concepts of short delivery and short payment
4.6.6. Understand the impact of Corporate actions on settlement process
4.6.7. Discuss in brief the advantage of Interoperability of Clearing Corporations
4.7. Understand Trading & Settlement process from investors’ point of view (online trading platform/ mobile trading etc)
4.7.1. Explain Securities Lending and Borrowing Mechanism (SLBM) and its role
4.8. Understand and interpret market information
4.8.1. Market size and activity/ liquidity aspect (impact cost)
4.8.2. Reading market prices
4.8.3. Disclosures by listed companies
4.9. Understanding the margining and risk management systems for secondary markets
4.9.1. Capital adequacy norms
4.9.2. Margins and Cross-margining
4.9.3. Settlement Guarantee Fund (SGF)/ Investors services fund
4.10. List the rights, obligations and grievance redressal mechanism for investors in secondary markets
4.10.1. Discuss briefly the importance of Investor Protection Fund (IPF)
4.11. Secondary market trading & reporting of debt instruments

Unit 5: Mutual Funds

5.1. Define and explain the concept of mutual fund (an alternate channel of investing into debt and equity)
5.1.1. Explain the basic features of a mutual fund
5.1.2. Understand various features of mutual fund products
5.2. Describe key terms and concepts associated with mutual funds
5.2.1. Types and categories of Mutual fund schemes
5.2.2. Know about units and unit capital
5.2.3. Explain the concepts of Mark to market (MTM)and Net Asset Value (NAV)
5.2.4. Know about Fund running expenses (FRE) and Loads
5.2.5. Compare and contrast Open-end, Closed-end and Interval funds
5.2.6. Explain the importance of mutual fund being a pass through entity
5.2.7. Differentiate between Dividend and Growth options
5.2.8. Understand the workings of a mutual fund and roles of constituents in the mutual fund (Sponsor/ Trustee/ AMC/ RTA/ Custodian/ Distributors/ Stock Exchange)
5.3. Define and List the types of open-ended mutual fund products
5.3.1. Equity schemes
5.3.2. Debt schemes
5.3.3. Hybrid schemes
5.3.4. Solution oriented schemes
5.3.5. Other schemes
5.4. Define and List the types of close-ended mutual fund products
5.4.1. Fixed Maturity Plans (FMP)
5.4.2. Infrastructure Debt Funds (IDF)
5.4.3. Real Estate Mutual Funds (REMF)
5.5. Explain the types of investing in mutual funds
5.5.1. Active investing
5.5.2. Passive investing (ETF/ Index funds)
5.6. Describe the modes and processes associated with investing in mutual funds
5.6.1. Online investment and Offline investment modes
5.6.2. Permanent Account Number (PAN) and Know Your Customer (KYC) process including FATCA and CRS compliance (eKYC)
5.6.3. Purchases: New Fund Offer (NFO) and Continuous offer, Offer Document/ KIM/ Fund Factsheet
5.6.4. Redemptions
5.6.5. Non-financial transactions
5.6.6. Statement of Account (SoA) and Consolidated Account Statement (CAS)
5.6.7. Distributor commissions
5.7. Understand how systematic transactions are conducted and their uses
5.7.1. Systematic Investment Plan
5.7.2. Systematic Withdrawal Plan
5.7.3. Systematic Transfer Plan
5.8. Understand the Switches
5.9. Know the reading Mutual Fund Information
5.10. Understand the benefits and cost of investing in mutual funds
5.11. Know the regulatory framework for mutual funds
5.11.1. Features of Mutual Fund Regulation
5.12. Investor Service Standards

Unit 6: Derivative Markets

6.1. Define derivative products
6.1.1. Explain the role of derivatives in risk management and support with real life illustrations
6.1.2. Describe how a derivative product is structured (pay-off structuring)
6.2. Describe various concepts and features associated with derivatives
6.2.1. Zero Sum Game
6.2.2. Settlement Mechanism
6.2.3. OTC and Exchange Traded Derivatives
6.2.4. Arbitrage
6.3. List the types of derivative products and discuss their features
6.3.1. Forwards
6.3.2. Futures
6.3.3. Options
6.3.4. Swaps
6.4. Describe the structure of derivative markets and list out the derivative products available for trading
6.5. Understand how derivative contracts are traded and settled – Futures & Options
6.5.1. Discuss the contract specifications
6.5.2. Discuss the trading and settlement process
6.6. Describe the risk management system in derivative markets and its regulatory requirements
6.6.1. Understand Base Minimum Capital and Liquid Net-worth requirements including cash and non-cash collateral
6.6.2. Understand the purpose and types of margins required
6.6.3. Understand how position limits are calculated
6.7. Understand the application of derivatives products in risk management and support with real life examples
6.7.1. Describe briefly about hedging, speculation and arbitrage
6.7.2. Describe the costs and benefits of derivatives
6.8. Understand the key market indicators in derivative markets
6.8.1. Describe Open Interest
6.8.2. Describe Put Call Ratio (PCR)