NISM Equity Derivatives Module Exam

Introduction to NISM Series VIII – NISM Equity Derivatives Module Exam

NISM Equity Derivatives Module Exam is one of the most popular among the certification exams offered by NISM.  NISM (National Institute of Securities Market) is established by SEBI with a view of increasing efficiency and enhancing the quality standards of securities markets in India.  NISM conducts exams for testing and certifying the candidates in various exams. NISM examinations are conducted in various test centers all over the India on daily basis.

Why to take the Examination:

The examination is mandatory for all terminal operators who are approved users to execute orders on equity derivatives segment of any stock exchange.  All trading members of recognized stock exchanges in India are required to have approved users for transacting in equity derivative segment.  Before 2012, NCFM equity derivatives (Dealers) module is used to be most popular due to NSE’s near monopoly in the segment.  Now, NISM Equity Derivatives Module Exam is mandatory to register as approved used in any stock exchange like NSE, BSE or MCX-SX in the derivatives segment of that exchange. As it is mandated by SEBI, persons working or planning to work in this, must pass the examination.

Passing Requirements of the exam:

NISM Equity Derivatives examination is an online examination conducted in MCQ (Multiple Choice Questions) format.  The examination can be taken by person to desire to appear the examination from major cities and towns all over the India.  Along with NISM, NSE, BSE and other institutes conduct the exam at their test centers on behalf of NISM.

The exam has 100 questions with each one carrying one mark each.  Passing score for the exam is a minimum of 60 percent.  But candidates must be cautious of negative marks in the exam. Each wrongly selected answer will attract a penalty of 25% of marks allotted for that particular question.  So one must be careful in this aspect.  If a particular question is not attempted, it will carry zero (0) marks.  Negative marks will be debited from already scored marks.  So one will not pass the exam even if one marks 60 questions correctly.  If the remaining questions are wrong, they will not be able to pass it.

It is also a timed test.  After starting the examination, the count down timer starts at 120:00 minutes and one must complete the exam before it reaches 0:00.  If prepared well, one can easily manage to complete the exam in the specified time periods.  If exam is not marked as complete before that time, system snatches away and closes the exam by scoring already marked questions.  If by that time, if candidates managed to get 60% marks (Net of negative marks), they will be declared as passed.

Exam Fees and Validity:

NISM Equity Derivatives Module exam has a validity of 3 years (36 months) from the date of examination.  The examination fee is 15oo rupees.  Additional payment gateway charges are payable for all payments done using online payment gateway.

NISM-Series-VIII: Equity Derivatives Certification Examination Curriculum

 

I. Basics of Derivatives

  1. Basics of derivatives
  2. Evolution of derivatives market
  3. Indian derivatives Market
  4. Market participants
  5. Types of derivatives markets
  6. Significance of derivatives
  7. Various risk faced by the participants in derivatives

II. Understanding Index

  1. Introduction to Index
  2. Significance and economic purpose of Index
  3. Types of Indices
  4. Attributes of an Index and concept of impact cost
  5. Index management
  6. Major Indices in India
  7. Applications of Index

III. Introduction to Forwards and Futures

  1. Introduction to Forwards and Futures contracts
  2. Payoff Charts for Futures contract
  3. Futures pricing
  • Cash and carry / Non-arbitrage model for futures pricing
  • Expectancy model of futures pricing
  • Concept of convergence of cash and futures prices
  1. Basic differences in Commodity, Equity and Index Futures
  2. Uses of futures
  • Role of different players in futures market
  • Use of futures contract as an effective instrument for managing risk
  • Strategies for hedging, speculation and arbitrage in futures market

IV. Introduction to Options

  1. Basics of options
  2. Payoff Charts for Options
  3. Basics of options pricing and option Greeks
  • Fundamentals of options pricing
  • Overview of Binomial and Black-Scholes option pricing models
  • Basics of Option Greeks
  1. Uses of Options

V. Option Trading Strategies

  1. Option spreads and their payoff charts
  2. Straddle: market view and payoff charts
  3. Strangle: market view and payoff charts
  4. Covered Call: market view and payoff charts
  5. Protective Put: market view and payoff charts
  6. Collar: market view and payoff charts
  7. Butterfly spread: market view and payoff charts

VI. Introduction to Trading Systems

  1. Trading Systems, corporate hierarchy, order types and conditions
  2. Selection criteria of Stock for trading
  3. Selection criteria of Index for trading
  4. Adjustments for Corporate Actions
  5. Position Limits
  6. Using daily newspapers to track futures and options

VII. Introduction to Clearing and Settlement system

  1. Clearing Members, their role and eligibility norms
  2. Clearing Mechanism and computation of open positions
  3. Settlement Mechanism for stock and index futures and options
  4. Understanding margining and mark to market under SPAN
  5. Risk Management features and position limits

 

VIII. Legal and Regulatory Environment

  1. Securities Contract (Regulation) Act, 1956
  2. Securities and Exchange Board of India Act, 1992
  3. Important rules and regulations in derivatives trading
  4. Regulation in clearing & settlement and risk management
  5. Major recommendations of the L C Gupta Committee
  6. Major recommendations of the J R Verma Committee

IX. Accounting and Taxation

  1. Accounting of Futures and Options contracts
  2. Taxation of Derivative transaction in securities

 X. Sales Practices and Investors Protection Services

  1. Risk profile of the investors.
  2. Importance of profiling clients in sales process
  3. Importance of KYC
  4. Documents required by the investors to trade in Derivatives contract
  5. Best practices in derivatives sales
  6. Investors Grievance Mechanism

Source for curriculum (As on 14 November 2015): NISM

At first the NISM Equity Derivatives Module Examination syllabus looks too vast.  But with suitable preparation one can has good grasp of the subject topics easily.  Some topics like options and various trading strategies require little more practice.  If the candidates are entirely new, the terminology of derivatives (futures and options) looks little confusing.  Here there is no shortcut except practicing and understanding the concepts underlying the topics.

The nature of the topics and exam itself requires some practice of simple problems involving various trading strategies using futures and options. Calls and Puts trading in f&o segment is confusing for new candidates not involved with them earlier.  With the possibility of many combinations of options trading strategies, one will land in trouble in exam, if not prepared well in these topics.

There will not be many tricky questions in the exam but understanding the basic concepts is essential. Without clear understanding of the concepts it will be nightmare for the candidates.  Most often, candidates may even pass this NISM Equity Derivatives Module Exam with some practice of model questions and get certified.  But one must remember the purpose of the examination is for actually using the knowledge in real life.  How can they be good at their job / trading / profession without even knowing the underlying concepts.

Its not uncommon to see the candidates with nism certification but without actual knowledge of the important concepts of the derivatives trading.  in fact, the objective of the examination is to create common MINIMUM knowledge bench mark and not to test the excellence in the subject. But to be more professional one must continue to gain further knowledge even after passing the examination.

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