NISM Series-VII: Securities Operations and Risk Management Interview Questions

The NISM Series-VII: Securities Operations and Risk Management assessment look to make a typical least information benchmark as the essential norm for related people of an enlisted stock-intermediary/exchanging part/clearing part in perceived stock trades, engaged with (a) resources or assets of financial backer or clients (b) redressal of financial backer complaints, (c) interior control or chance administration and (d) exercises having a heading on the functional risks.

What are the main risks associate with securities operations, and how can they be mitigated?

The main risks associated with securities operations include:

1. Operational Risk: This refers to the risk of loss due to inadequate or failed internal processes, systems, human errors, or external events. This can include risks such as data breaches, system failures, and human errors.
2. Credit Risk: This refers to the risk that a counterparty will default on its obligations. In securities operations, this can include risks such as the failure of a broker-dealer or custodian.
3. Market Risk: This refers to the risk of loss due to changes in the value of a security or portfolio of securities due to market conditions. This can include risks such as interest rate risk, currency risk, and commodity price risk.
4. Liquidity Risk: This refers to the risk of loss due to an inability to buy or sell securities in a timely manner at a fair price.

These risks can be mitigated through a combination of technical and organizational controls, such as:

1. Implementing robust risk management systems and processes: This includes establishing risk management policies and procedures, regularly reviewing and testing risk management systems, and monitoring for unusual activity.
2. Implementing access controls and encryption: This includes implementing user authentication and authorization, as well as encrypting data both in transit and at rest.
3. Regularly performing compliance and audit: This includes identifying and addressing any non-compliant data or access controls.
4. Implementing incident response and disaster recovery plans: This includes having plans in place to quickly and effectively recover data in case of a security incident or disaster.

By implementing these steps, organizations can effectively protect their data and maintain compliance with legal and regulatory requirements in the securities operations.

Explain the role of compliance in securities operations and risk management.

Compliance plays a critical role in securities operations and risk management as it helps ensure that organizations are adhering to legal and regulatory requirements and standards. Compliance helps organizations to identify and manage risks associated with their operations, and prevent or minimize any potential negative impact on their business.

In securities operations, compliance includes ensuring that the organization adheres to regulations such as the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and the Commodity Futures Trading Commission (CFTC) regulations. Compliance also includes adhering to industry standards such as the Global Investment Performance Standards (GIPS) and the International Organization of Securities Commissions (IOSCO) principles.

Compliance activities in securities operations include:

1. Development and implementation of policies and procedures: Organizations must have clear policies and procedures in place to ensure compliance with legal and regulatory requirements and standards.
2. Risk assessment: Compliance teams must regularly assess the organization’s operations to identify and evaluate any potential risks and determine appropriate controls to mitigate those risks.
3. Monitoring and testing: Compliance teams must monitor and test the organization’s operations and controls to ensure that they are effective and in compliance with regulations and standards.
4. Record-keeping: Organizations must maintain accurate and complete records to demonstrate compliance with regulations and standards.

In summary, compliance plays a vital role in securities operations and risk management by ensuring that the organization adheres to legal and regulatory requirements and standards, and by helping the organization to identify and manage risks associated with their operations. By implementing effective compliance measures, organizations can prevent or minimize negative impacts on their business, and ensure the integrity and stability of the financial system.

Describe a situation in which you had to manage a risk related to securities operations, and how you handled it.

One example of a risk in securities operations is the potential for errors in the settlement process. To mitigate this risk, a financial institution might implement a system of checks and balances to ensure the accuracy of settlement instructions, such as having multiple parties verify the instructions before they are execute. Additionally, the institution may have a system in place to identify and correct errors quickly if they do occur.

How do you stay up-to-date with the latest regulatory developments and best practices in securities operations and risk management?

There are several ways that an individual or organization can stay informed in these areas.

1. Industry associations and professional organizations provide updates on regulatory changes and best practices.
2. Government agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) release publications and guidance on regulatory developments.
3. Trade publications and financial news outlets cover developments in securities operations and risk management.
4. Financial institutions and consulting firms often have teams dedicated to monitoring regulatory changes and providing guidance to clients.
5. Attending relevant conferences and seminars where industry experts discuss current and future developments.

It is important for securities operations and risk management professionals to stay informed about the latest regulations, best practices and industry trends in order to make informed decisions, identify and mitigate risks and demonstrate compliance with regulatory requirements.

How do you ensure that your organization’s securities operations and risk management systems are in compliance with regulatory requirements?

Ensuring compliance with regulatory requirements is a crucial aspect of securities operations and risk management. Here are a few ways organizations can ensure compliance:

1. Understand the regulatory requirements: Organizations should have a thorough understanding of the regulatory requirements that apply to their securities operations and risk management systems. This includes keeping up-to-date with any changes or updates to the regulations.
2. Implement a compliance program: Organizations should implement a compliance program that includes procedures, policies, and controls to ensure compliance with regulatory requirements. This program should include regular risk assessments, testing, and monitoring to ensure that the controls are operating effectively.
3. Communicate with regulators: Organizations should maintain open communication with regulators to ensure that they are aware of any issues or concerns related to regulatory compliance. This can include regular reporting, submitting requested information and responding to any inquiries.
4. Document and retain records: Organizations should document and retain records of their compliance efforts, including risk assessments, testing and monitoring results, and any corrective actions taken.

Explain the difference between operational risk and credit risk in securities operations.

To ensure compliance with regulatory requirements, an organization can take several steps to review and update its securities operations and risk management systems:

1. Review existing policies and procedures: Organizations should regularly review and update their existing policies and procedures to ensure they are in compliance with current regulations.
2. Conduct internal audits: Internal audits can help organizations identify areas where their systems may not be in compliance with regulatory requirements and make necessary changes.
3. Keep abreast of changes in regulations: Organizations should stay informed about changes in regulations and update their systems accordingly.
4. Seek external review: Organizations may benefit from engaging external auditors or consultants to review their systems and provide a fresh perspective on compliance.
5. Establish a compliance program: Organizations can establish compliance program to ensure that all relevant regulatory requirements are being met and that the organization is able to detect and prevent violations of law or regulation.
6. Communicate with regulators: Organizations can communicate with regulators, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), to ensure they understand the regulatory requirements and that their systems are in compliance.
7. Implement a robust incident management process: Organizations should have a robust incident management process in place to identify, report and investigate any potential regulatory breaches.

By taking these steps, organizations can help ensure that their securities operations and risk management systems are in compliance with regulatory requirements, which can help prevent costly legal and reputational risks.

How do you ensure that your organization’s securities operations and risk management systems are robust and able to handle high-stress situations?

To ensure that an organization’s securities operations and risk management systems are robust and able to handle high-stress situations, an organization can take several steps:

1. Conduct regular stress testing: Organizations can conduct regular stress testing of their systems to identify potential vulnerabilities and weaknesses. This includes testing the system’s ability to handle large volumes of trades, rapid price changes and other high-stress scenarios.
2. Implement robust risk management systems: Organizations should have robust risk management systems in place to identify, assess, and manage the risk of loss. This should include a process for identifying potential risks and assessing the likelihood of their occurrence, as well as a plan for mitigating or transferring those risks.
3. Implement a robust incident management process: Organizations should have a robust incident management process in place to identify, report and investigate any potential problems or issues that arise during high-stress situations.
4. Implement robust data management systems: Organizations should have robust data management systems in place to ensure the integrity of their data during high-stress situations.

By taking these steps, organizations can help ensure that their securities operations and risk management systems are robust and able to handle high-stress situations, which can help prevent costly operational disruptions and reputational risks.

Describe a time when you had to handle a crisis related to securities operations, and how you resolved it.

A crisis related to securities operations could take many forms, such as a system failure, a cyber-attack, or a failure to meet regulatory requirements. In the event of such a crisis, an organization would likely take several steps to resolve it:

1. Identify the cause of the crisis: The first step in resolving a crisis is to understand the cause of the crisis, this is crucial in order to take the appropriate actions to resolve it.
2. Implement an incident management process: Organizations should have an incident management process in place to identify, report, and investigate any potential problems or issues. This process should be activated in the event of a crisis.
3. Communicate with relevant parties: Organizations should communicate with relevant parties, such as customers, regulators, and employees, to ensure that they are aware of the situation and that appropriate steps are being taken to resolve it.
4. Implement a crisis response plan: Organizations should have a crisis response plan in place to ensure that they are able to quickly recover from a crisis. This plan should include steps for addressing the immediate effects of the crisis and for restoring normal operations.
5. Review the incident and take corrective actions: Organizations should review the incident to understand what went wrong and take corrective actions to prevent it from happening again.
6. Implement a continuous monitoring and improvement process: Organizations should continuously monitor their securities operations and risk management systems to identify and address any issues that arise.

By taking these steps, organizations can help resolve a crisis related to securities operations, which can help prevent costly operational disruptions and reputational risks.

What is the role of technology in securities operations and risk management, and how do you stay current with the latest technologies in this field?

Technology plays a significant role in securities operations and risk management. Some of the key ways that technology is used in this field include:

1. Automation: Technology is used to automate many aspects of securities operations and risk management, such as trade processing, compliance checking, and risk assessment. This can help reduce errors, speed up processes and improve efficiency.
2. Data management: Technology is used to manage and analyze large amounts of data, such as market data, trade data, and risk data. This can help organizations make more informed decisions about risk management and investment strategies.
3. Cybersecurity: Technology is used to protect against cyber threats, such as hacking, data breaches, and system failures. This can help organizations protect their sensitive data and prevent costly operational disruptions.

To stay current with the latest technologies in the field of securities operations and risk management, organizations can take several steps:

1. Attend industry conferences and events: Organizations can attend industry conferences and events, such as those hosted by professional associations, to learn about the latest trends and developments in the field.
2. Read industry publications: Organizations can read industry publications, such as trade journals and magazines, to stay informed about the latest trends and developments in the field.
3. Research online: Organizations can research online, using search engines, social media, and other online resources, to learn about the latest technologies and best practices in securities operations and risk management.

By taking these steps, organizations can stay current with the latest technologies in the field of securities operations and risk management and take advantage of new technologies to improve their operations and manage risks more effectively.

Explain the importance of robust governance in securities operations and risk management and how it can be achieve.

Robust governance is essential in securities operations and risk management to ensure that an organization’s operations are conducted in a safe and sound manner, that risks are effectively identified, measure, monitor and control and that the organization’s activities align with its objectives and comply with regulatory requirements.

Some of the key elements of robust governance in securities operations and risk management include:

1. Clear policies and procedures: Organizations should have clear policies and procedures in place for securities operations and risk management. These should be regularly review and update to ensure that they are current and effective.
2. Accountability and oversight: Organizations should have clearly define roles and responsibilities for securities operations and risk management, and there should be effective oversight and accountability in place to ensure that these roles are being carried out effectively.
3. Risk management framework: Organizations should have a robust risk management framework in place to identify, measure, monitor, and control risks. This should include regular risk assessments, stress testing, and scenario analysis.
4. Compliance and monitoring: Organizations should have robust compliance and monitoring processes in place to ensure that they are adhering to regulatory requirements and industry best practices.

Achieving robust governance in securities operations and risk management can be achieve by having a strong culture of governance and risk management, setting clear expectations and holding employees accountable, having effective systems of internal control and regular review, having an effective system of risk management, and having a well-designed and implemented compliance program. Additionally, having a dedicated and competent risk management team and independent oversight, such as an internal audit team or a board level risk committee can help to achieve robust governance in securities operations and risk management.

1.) What are the types of securities markets in NISM?

Kinds of Securities market :

• Equity shares, preference shares, debentures, and securities are the drawn-out Securities exchanged in the capital market.
• The capital market is the wellspring of long-term assets for business and industry. 8 Types of Financial Market
• The financial market might be named essential market or optional market.

2.) Is it true or not that you are aware of the terms’ Securities’ and ‘Securities Market’?

Securities are financial instruments given to raise reserves. The essential capacity of the Securities markets is to empower a stream of capital from those that have it to those that need it. Securities market help in the movement of assets from those with inactive assets to other people who have a useful requirement for them.

Securities markets give channels for the designation of reserve funds to ventures and in this manner decouple these two exercises. Accordingly, the savers and financial backers are not compelled by their singular capacities, but rather by the economy’s capacities to contribute and save separately, which unavoidably improves reserve funds and interest in the economy.

3.) Do you know the concept of ‘risks’ and ‘return’?

Return alludes to the advantage the financial backer will get from putting resources into the security. Risk alludes to the likelihood that the normal returns may not appear. For instance, an organization might look for capital from a financial backer by giving a bond. A bond is obligation security, and that implies it addresses a getting of the organization.

The security will be given for a particular period, toward the finish of which the sum acquired will be reimbursed to the financial backer. The return will be as revenue, paid occasionally to the financial backer, at a rate and recurrence determined in the security. The gamble is that the organization might fall into awful times and default on the installment of interest or return of head.

4.) Make sense of the structure of Indian Securities Markets in NISM?

The market where Securities are given, bought by financial backers, and along these lines moved among financial backers is known as the Securities market. The Securities market has two associated and indivisible fragments, viz., the essential market and the optional market. The essential market, likewise called the new issue market, is the place where backers raise capital by giving Securities to financial backers.

The market likewise called the stock trade works with the exchange as of now given Securities, in this way empowering financial backers to exit from speculation. The gamble in security speculation is moved from one financial backer (dealer) to another (purchaser) in the optional business sectors. The essential market makes financial resources, and the secondary market makes them attractive.

5.) Who are the issuers in Indian Securities Markets?

Issuers are associations that fund-raise by giving Securities. They might have a present moment and long term need for capital, and they issue Securities in view of their need, their capacity to support the Securities. A portion of the normal backers in the Indian Securities Markets are:

• Organizations issue Securities to raise short and long-term capital for directing their business tasks.
• Focal and state legislatures issue obligation Securities to meet their necessities for short and long-term assets to meet their deficiencies. The shortfall is the degree to which the cost of the public authority isn’t met by its pay from charges and different sources.
• Neighborhood states and districts may likewise give obligation Securities to meet their improvement needs. Government organizations don’t give value to Securities.
• Financial institutions and banks might give value or obligation to Securities for their capital necessities past their ordinary wellsprings of subsidizing from stores and government awards.
• Public area organizations that are possessed by the public authority might give Securities to public financial backers as a feature of the disinvestment program of the public authority when the public authority chooses to offer its holding of these Securities to public financial backers.
• Shared reserves issue units of a plan to financial backers to assemble cash and put them for the benefit of financial backers in Securities.

6.) What are the various regulators of the Indian Securities Markets?

Securities and Exchange Board of India (SEBI): The Securities and Exchange Board of India (SEBI), a legal body selected by an Act of Parliament (SEBI Act, 1992), is the central controller of Securities markets in India. SEBI capacities under the Ministry of Finance. The primary target of SEBI is to work with the development and improvement of the capital business sectors and to guarantee that the interests of financial backers are secured.

SEBI has arranged and informed guidelines that cover movements of every sort and go-betweens in the Securities markets.

The Reserve Bank of India (RBI): The Reserve Bank of India directs the currency market section of the Securities market. As the director of the public authority’s acquiring program, RBI is the issuing supervisor for the public authority. It controls and manages the public authority Securities market. RBI is additionally the controller of the Indian financial framework and guarantees that banks follow prudential standards in their tasks. RBI likewise leads the financial, forex, and credit approaches, and its activities in these business sectors impact the stockpile of cash and credit in the framework, which thus sways the loan fees and acquiring expenses of banks, government, and different guarantors of obligation Securities.

7.) What are various money market securities in NISM?

• Repos/turnaround repos: A repo is an exchange wherein one member acquires cash at a pre-decided rate against the insurance of qualified security for a predefined timeframe. An opposite repo is a loaning exchange; a repo in the books of the borrower is a converse repo in the books of the moneylender. Qualified guarantees for repos and turnaround repos are focal and state government Securities and select corporate securities.
• Collateralized Borrowing and Lending Obligation (CBLO): A Collateralized Borrowing and Lending Obligation (CBLO) is an instrument use to loan and acquire for brief periods, regularly one to three days. CBLO is normalize and exchanged repo.
• Authentications of Deposits (CDs): Certificates of Deposits (CDs) are transient tradable stores given by banks to raise reserves. Compact discs are not quite the same as ordinary bank stores since they include the production of Securities. This makes the CD adaptable before development. In any case, genuine exchanging of CDs is very restrict with most financial backers liking to hold them to development.
• Depository Bills: The focal government gets widely in the currency market for its day-to-day tasks through the issue of transient obligation Securities called Treasury charges (T-bills). T-bills are given for developments of 91 days, 182 days, and 364 days. They are given through a closeout interaction oversaw by the RBI and recorded not long after the issue. Banks, common assets, insurance agencies, fortunate assets, essential sellers, and FIs bid in these closeouts.
• Business Paper: Companies and foundations raise momentary assets in the currency market through the issue of the business paper (CP). However CPs are expect to have a credit score, they are unstable corporate advances with a restricted optional market.

 8.) Do you have at least some idea of what International Funds are?

Worldwide assets put resources into Securities recorded in business sectors outside India. The sort of Securities that the asset can put resources into is determine by the controller SEBI and incorporates value offers and obligations – recorded abroad, units of common assets and ETFs gave abroad, and ADRs and GDRs of Indian organizations recorded abroad. The assets can likewise put a piece of the portfolio in the Indian business sectors.

9.) Do you have any idea about what are Fund Of Funds (fofs) is?

FoFs puts resources into different assets. The FoF chooses reserves that meet its venture goals and puts resources into them. Its portfolio isn’t comprise of Securities, however, is an arrangement of different assets. Most FoFs put resources into plans of a similar shared reserve. Some FoFs consider plans across storehouses which meets the FoFs venture objective for consideration in the portfolio.

10.) What is the yield from Maturity’s point of view?

The rate which compares the current worth of future incomes from security with the ongoing cost of the security is known as the Yield to Maturity (YTM) of the security. As bond cost changes, so do the YTM. Hence, YTM is the rebate rate suggest in the security esteem at a moment. YTM is a famous and broadly involved strategy for figuring the profit from a security venture. Yield citations in the obligation market for the most part allude to YTM.

11.) Do you have an idea as to what an Initial Public Offer (initial public offering) Is in NISM?

The main public proposal of offers made by an organization is called an Initial Public Offer (IPO). At the point when an organization makes an IPO the portions of the organization turn out to be generally held and there is an adjustment to the shareholding design. An IPO can either be a new issue of offers by the organization or it very well may be a proposal available to be purchase to general society by any of the current investors, like the advertisers or monetary establishments.

New Issue of Shares

• New offers are given by the organization to public financial backers. The gave share capital of the organization increments. The rate holding of existing investors will descend because of the issuance of new offers.

Make Available for purchase

• Existing investors, for example, advertisers or monetary establishments offer a piece of their holding to the public financial backers. The offer capital of the organization doesn’t change since the organization isn’t making another issue of offers. The returns from the IPO go to the current investors who are selling the offers and not to the organization. The holding of the current investors in the offer capital of the organization will diminish.

12.) Explain what a Follow-on Public Offer (FPO) Is?

A follow-on open deal is made by a guarantor that has previously made an IPO before and presently makes a further issue of protections to general society. An organization can make a further issue of offers on the off chance that the total of the proposed issue and the wide range of various issues made in a monetary year doesn’t surpass multiple times the pre-issue total assets.

Whenever an organization needs extra capital for development or to re-try its capital design by resigning obligation, it raises value capital through a new issue of capital in a follow-on open proposition.

13.) What exactly is the rights issue of shares?

At the point when an organization makes a new issue of offers, it affects the current investors since their proportionate holding in the offer capital of the organization gets weaken. For instance, an organization might have 10 lakhs portions of Rs.10 each, adding up to a given and settled up capital of Rs. 1 crore. In the event that it gives another 10 lakhs shares, to build its capital, the extent held by existing investors will descend significantly, as the given and settled up capital has multiplied.

To forestall this, segment 81 of the Company’s Act expects that any organization that needs to raise more capital through an issue of offers should initially offer them to the current investors.

14.) What are the components of risk management in NISM?

There are at least 5 vital components that ought to be respect while making a gamble on the board structure. They include

• risk reporting and monitoring
• risk mitigation
• risk governance
• risk measurement
• risk identification; and assessment

15.) How might we at any point sidestep financial risk in NISM?

• Contribute cautiously.
• Find out about diversification.
• Put cash in the savings account.
• Get a trustworthy management accountant.

16.) What do you mean by counterparty limit.

Counterparty limits limit the gamble’s openness to an extraordinary counterparty. They are set in order to diminish the misfortune that could emerge if the counterparty were to default on its liabilities.

17.) Give an explanation of Market risk.

Market risk is the likelihood that an individual or other substance will experience misfortunes because of conditions that influence the entire appearance of interests in the monetary business sectors.

18.) Which is the most reasonable and economical source of finance in NISM?

Debentures are the most reasonable wellspring of money. As it can rapidly be change over into shares is of a lower rate and fixed revenue is introduce independent of benefit. The obligation is the least expensive wellspring of money as associated with value.

19.) How frequently does the association reestablish its evaluation of the top risks?

The venture-wide gamble assessment strategy ought to be touchy to move in the business climate. A vigorous strategy for perceiving and focusing on the critical venture gambles, including creating chances, is important to an evergreen perspective on the top dangers.

20.) How is PFE expect in NISM?

PFE is a division of counterparty risk/credit risk. It is assessed by estimating enduring exchanges done against the sensible market costs in the future during the presence of exchanges.

21.) Who considers the top risks and is liable for results, and to whom do they report?

When the key risks are designate, some individual or some gathering, capacity, or unit should keep them. Holes and covers in risk possession should be diminish, on the off chance that not release.

22.) Explain what you understand by counterparty credit exposure in NISM.

Counterparty credit openness is a proportion of the sum that would be miss experiencing the same thing that a counterparty to a monetary agreement defaults. Just agreements that are covertly haggle among counterparties, for example over-the-counter (OTC) subordinates, are expose to counterparty credit risk.

23.) How strong is the organization in keeping up with its top risks?

A vigorous strategy for achieving and noticing every one of the vital venture gambles is important for fruitful risks on the board, and hazard the executive’s capacities should be expand ceaselessly as the speed and intricacy of business change.

24.) How is credit risk management evaluation led in NISM?

Since there is a popularity for the risk the board specialists in the financial industry, henceforth there are immense possibilities that you will be pose this inquiry. Obviously, the employing supervisor needs to pass judgment on your capacity to lead an essential investigation of a client’s monetary position and credit risk. You are propose to depict the essential strides of credit risk evaluations of people or firms. Questioners wish to test assuming that you are gift to the point of completing the methods all alone and how well you get the master plan.

25.) Which metric ought to be utilize to analyze an organization’s stock?

For this situation, the questioner needs to dissect your gamble evaluation abilities. Your answer should induce that you have a clear-cut methodology to quantify stock’s presentation and present discoveries utilizing delineations and thinking. As money is proficient, we are suppose to assess the chance and prize of monetary speculation potential open doors.

26.) What is the reason for the leverage ratio in NISM?

An influence proportion is any of a few monetary estimations that surveys the capacity of an organization to meet its monetary commitments. A portion of the normal influence proportions incorporates the obligation value proportion, value multiplier, level of monetary influence, and shopper influence proportion.

27.) What is the initial step of the risk management process in NISM?

Distinguishing proof is the initial phase in risk the board interaction

The means of monetary gamble the executives cycle are –

• Identifying the risk.
• Analyzing the risk.
• Prioritizing the risk.
• Minimize the risk.
• Monitoring the risk.

28.) Which financial items might have openness to LIBOR?

LIBOR is connect to a wide scope of monetary items, including –

• Floating rate notes and securities, including corporate bonds
• Customizable rate contract upheld protections (e.g., ARMs, CMOs, CAS, STACR, CRT)
• Structured products
• Syndicated loans, small business loans, commercial real estate loans, other bank loans, or floating-rate loans
• Adjustable-rate mortgages
• Derivatives, including interest rate swaps
• Margin loans
• Securities-based lines of credit/SPA loans

29.) Make sense of the five stages in the risk management process in NISM.

Stage 1: Recognizing the Risk.

Step 2: Investigating the Risk.

Stage 3: Evaluating or Ordering the Risk.

Step 4: Treating the Risk.

Stage 5: Observing and Reviewing the Risk.

30.) Tell us the 4 methods for overseeing risk in NISM.

The essential cycles for the risk on the board are

• Aversion (take out, or not become involved)
• Decrease (optimizing – mitigating)
• Sharing (move – rethink or insuring)
• Retention (acknowledge and budgeting)