NISM Series-XIII: Common Derivatives

The NISM Series-XIII: Common Derivatives examination aims to enable a better understanding of various derivatives products available in the three derivatives segments (i.e., Equity Derivatives, Currency Derivatives and, Interest Rate Derivatives. Additionally, it also oversees the regulations and risks associated with these products and the exchange mechanisms of clearing and settlement. Furthermore, the examination also covers knowledge competencies related to the understanding of the financial structure in India and the importance of the different rules and regulations governing the Indian securities market.

Examination Objectives

On successful completion of the examination the candidate should:

Know the basics of the Indian derivatives market (covering Equity Derivatives, Currency Derivatives, and Interest Rate Derivatives).
Understand the various trading and hedging strategies that can be built using futures and options.
Understand the clearing, settlement, and risk management as well as the operational mechanism related to the derivatives markets.
Know the regulatory environment in which the derivatives markets operate in India.

Target Audience

All approved users and sales personnel of Trading members of currency derivatives, interest rate derivatives, and equity derivatives segments of recognized stock exchanges
Interested students/professionals
Any other individuals

Exam Details

Understanding the exam details is a very crucial step and should not be skipped. It gives you an idea about the exam format and helps you prepare a suitable study plan. Additionally, it also helps you build your speed and accuracy. This certification is the roadmap towards a successful and thriving career but before that let’s understand the exam details.

The NISM-Series-XIII: Common Derivatives Certification Examination will be a 150 marks examination to be completed in 3 hours. It will have 150 questions of 1 mark each. There will be a negative marking of 25% of the marks assigned to a question. The passing score for the examination is 60% which is 90 marks out of total marks of 150. The Cost of the exam is Rs. 3000.

Eligibility Criterion

There is no eligibility criterion to take this exam.

Exam Name	NISM Series-XIII: Common Derivatives
Exam Duration	180 minutes
No. of Questions	150
Maximum marks	150
Passing Marks	60% and above
Cost	Rs. 3000
Validity	3 Years

Registration process

To register and enroll for NISM Certification Examination and CPE Program, the candidate needs to fill in the Online Registration Form available on the NISM Online Certification System at https://certifications.nism.ac.in
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Login into NISM Certification Portal using your registered email ID and password.
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NISM Series-XIII: Common Derivatives FAQs

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NISM Series-XIII: Common Derivatives Course outline

The NISM Series-XIII: Common Derivatives Course outline is as follows:

Unit 1:Basics of Derivatives

1.1 Explain the term “derivatives”

1.2 Study the history and evolution of derivatives market and explain the factors influencing the growth of derivatives market globally

1.3 Know the history of Indian derivatives Market and understand the available derivative products in India

1.4 List various stakeholders (market participants) and their roles in the derivatives markets

1.5 Differentiate between OTC and Exchange Traded Market

1.6 Explain the significance and economic purpose of derivatives

1.7 List various risks faced by the participants in derivatives

Unit 2:Introduction to the Underlying Markets

2.1 Introduction to Equity Markets and Indices

Provide a brief introduction to equity markets
Understand the significance and economic purpose of Index
List important attributes for construction of an Index
Understand how index is constructed, maintained and revised
List various indices in India
Understand various direct and indirect applications of indices
Explain the term impact cost

2.2 Introduction to Currency Markets

Know the history of foreign exchange markets
Know the most popular and highly traded currency pairs in the world
Provide an overview of international currency markets
Understand the peculiarities of currency markets in India
Understand the meaning of settlement or value date
Differentiate between features of Over-The-Counter (OTC) and Exchange-traded derivatives
Know the calculations involved in Exchange rate arithmetic (cross rate calculation)
Understand the impact of market economics on currency prices
List the important economic indicators for the markets
List various market players in the foreign exchange market

2.3 Introduction to Fixed-income Securities

Overview of financial markets and grouping of markets based on asset type
Overview of fixed-income securities and economic role of debt markets
Know the classification of fixed-income securities based on cash flow pattern, tenor, etc.
Understand the difference between fixed-income security and fixed-return security
Compare Debt securities versus equity securities
Understand debt market and equity market as components of capital market
Explain the importance of debt market for the economic development of a country and know the relative size of debt and equity markets globally and in India

2.4 Introduction to “Interest Rate”

Understand the concept of interest rate and interest rate as rent on money
Explain the importance of risk-free interest rate as the basis and benchmark for all valuations and differentiate between risk-free interest rate and risky interest rate
Understand the difference between nominal rate of interest and real rate of interest
Understand term structure (yield curve), its shape, shifts and interpretation
Understand the conversion of interest rate into interest amount: effect of payment frequency, compounding frequency, day count basis and business day adjustment
Explain the concept of accrued interest

2.5 Return and Risk Measures for Debt Securities

Define spot rate (or zero rate) and holding period return
Define and calculate various measures of return: coupon, current yield, yield-to-maturity
Describe the relation between spot rate, bond price and yield-to-maturity
Define and calculate various measures of risk: Macaulay Duration, Modified Duration, Rupee Duration, Price value of a basis point (PVBP) and Convexity

Unit 3: Introduction to Forwards and Futures

3.1 Introduction to Forwards and futures contracts

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 forwards and futures

3.2 Forwards and Futures on Equities

3.2.1 Payoff Charts for Futures contract

Illustrate payoffs for Futures
Draw payoff charts for Long and Short Futures

3.2.2 Futures pricing

Explain the basics of cash and carry / Non-arbitrage model for futures pricing
Describe the expectancy model of futures pricing
Understand concept of convergence of cash and futures prices

3.2.3 Basic differences in Commodity, Equity and Index Futures

3.3 Exchange Traded Currency Futures

Terminology: Currency futures, Spot price, Futures price, Contract cycle, Value date/Final settlement date, Expiry date, Contract size, etc.
Know the concepts of Initial margin and Marking-to-market
Understand the rationale behind currency futures
Introduction of currency futures in India
Explain the concept of Interest rate parity and pricing of currency futures

3.4 Interest Rate Futures

Know the underlying assets of permissible interest rate derivative contracts in India
Know the market lot/contract amount, contract months, expiry dates of exchange-traded derivatives contracts
Understand tick size and its relation to the minimum change in the contract value
Describe the procedure for determining the daily settlement price and final settlement price
Discuss the delivery aspects of interest rate derivatives contracts including conversion factor, invoice amount, cheapest-to-deliver bond

Unit 4: Strategies Using Futures

4.1 Strategies using Equity Futures

Analyze the role of different players in the futures market
Outline the use of futures contract as an effective instrument for managing risk
Explain different strategies for hedging, speculation, and arbitrage in the futures market

4.2 Strategies Using Currency Futures

Construct long position in Currency futures
Construct short position in Currency futures
Know how hedging can be done using Currency futures
Understand how one can trade the spreads using Currency futures
Know arbitrage opportunities under various conditions

4.3 Strategies Using Interest Rate Futures

Explain speculative / trading strategies with suitable examples
Explain Hedging strategies for managing interest rate risk in loans and bond investments like by adjusting the Duration with futures
List and describe risks associated with futures: basis risk, yield curve spread risk and market liquidity risk

Unit 5: Introduction to Options – Options on Equities and Currencies

5.1 Know the basics of options

5.2 Understand the concept of option premium

5.3 Understand Call and Put option

5.4 Know Bought and Sold option

5.5 Distinguish between European vs. American option

5.6 Understand “Moneyness” of an option

5.7 Explain option pricing (Binomial and Black-Scholes) and option Greeks

5.8 Illustrate payoff charts for options

5.9 Understand the uses of Options

Unit 6:Option Trading Strategies – Strategies using Equity Options and Currency options

6.1 Option spreads and their payoff charts

Explain the term option spread
Illustrate various option spreads
Draw payoff charts for various option spread strategies

6.2 Straddle: market view and payoff charts

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

6.3 Strangle: market view and payoff charts

Explain what is strangle position
Elaborate what should be the market view when Strangle is to be used (Long/ Short)
Draw Net Payoff Chart for Strangle

6.4 Covered Call: market view and payoff charts

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

6.5 Protective Put: market view and payoff charts

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

6.6 Collar: market view and payoff charts

Explain what Collar position is
Elaborate what should be the market view when Collar is to be used
Draw Net Payoff Chart for Collar

6.7 Butterfly spread: market view and payoff charts

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 7: Introduction to Trading, Clearing, Settlement & Risk Management

7.1 Introduction to Trading Systems

Understand the trading systems, corporate hierarchy, order types and conditions
Discuss the Selection criteria of Stocks and Indices for trading
Know the contract specification, trading parameters and position limits
Understand how an adjustment is made in position value and contract specification for various corporate actions
Know the operational guidelines of Exchanges
Know the surveillance systems and procedures of exchanges

7.2 Clearing, Settlement and Risk Management in Currency Futures

Describe clearing members, their role and eligibility norms
Understand the Clearing Mechanism and computation of open positions
Understand the Settlement Mechanism for futures and options contracts
Understand margining and mark to market (MTM) under SPAN
Know the Risk Management features, position limits and net worth requirements
Know the margin collection process of Clearing Corporations and delivery procedure

Unit 8: Legal and Regulatory Environment

8.1 Explain provisions of Securities Contract (Regulation) Act, 1956 and how SC(R)A aims at preventing undesirable transactions in securities

8.2 Define the role of SEBI in regulating Derivatives market and know the features of Securities and Exchange Board of India Act, 1992

8.3 List important rules and regulations on trading in Derivatives market

8.4 Know the regulations in clearing & settlement and risk management

8.5 Outline major recommendations of the L C Gupta Committee

8.6 Outline major recommendations of the J R Verma Committee

8.7 Outline the recommendations of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency and Interest Rate Derivatives

8.8 Know the provisions of Foreign Exchange Management Act, 1999

8.9 Understand the salient features of RBI notification ‘Currency Futures (Reserve Bank) Directions, 2008

8.10 Understand the salient features of RBI Circular ‘Guidelines on trading of Currency Futures in Recognized Stock / New Exchanges’

8.11 Understand the salient features of SEBI Regulations for Currency Derivatives Exchanges

8.12 Know the eligibility criteria for membership of currency derivatives exchanges

8.13 Explain the role of various regulators in Bond and Interest Rate Derivatives Market

8.14 Know the restrictions and limits applicable to Resident and Non-resident Investors in Interest Rate Derivatives Markets

8.15 List the regulatory reporting requirements for Interest Rate Derivatives Markets

8.16 Define the role of FIMMDA in fixed income and derivatives markets in India

Unit 9: Accounting and Taxation

9.1 Explain accounting treatment for derivative contracts

9.2 Understand the taxation of derivative transaction in securities

9.3 Explain the tax treatment of profit/loss on derivative transaction in securities

Unit 10: Sales Practices, Code of Conduct and Investor Protection Measures

10.1 Understand the basic features of SEBI Codes of Conduct for Brokers and Sub-Brokers

10.2 Understand the importance of risk profiling of clients in sales process

10.3 Understand the importance of KYC and know the documents required by the investors to trade in Derivatives contract

10.4 Know the best practices in derivatives sales

10.5 Understand the Grievance redressal mechanism available to the investors

10.6 Understand the nature of complaints considered by exchanges

10.7 Explain the Arbitration mechanism at exchanges

NISM Series-XIII: Common Derivatives Preparatory Guide

Now, that we have read about the NISM Series-XIII: Common Derivatives exam and its details, the next important step is to understand how to prepare for the exam. Preparing for any exam is not an easy task and cannot be done with the blink of an eye. It requires a lot of dedication and hard work combined with the right set of resources to ace the exam. There are numerous resources available online but we need to figure out the ones that are beneficial for us. The NISM Series-XIII: Common Derivatives exam is a step towards a bright and successful career. To clear this exam you need an intent eagerness to learn. Our Preparatory Guide here will help you all along your journey and prepare you well for the exam.

Step-1 Review the Exam Objectives

Reviewing the exam objectives is an important step to ensure that nothing is left out. As mentioned earlier, going through the course outline is really important while preparing for any exam to make sure everything is covered. Furthermore, Familiarising yourself with the exam objectives helps is grasping concepts faster and with better understanding. NISM Series-XIII: Common Derivatives exam comprises of 10 units namely-

Unit 1:Basics of Derivatives
Unit 2:Introduction to the Underlying Markets
Unit 3: Introduction to Forwards and Futures
Unit 4: Strategies Using Futures
Unit 5: Introduction to Options – Options on Equities and Currencies
Unit 6:Option Trading Strategies – Strategies using Equity Options and Currency options
Unit 7: Introduction to Trading, Clearing, Settlement & Risk Management
Unit 8: Legal and Regulatory Environment
Unit 9: Accounting and Taxation
Unit 10: Sales Practices, Code of Conduct and Investor Protection Measures

Step-2 Discover your Learning Resources

NISM Series-XIII: Common Derivatives Study Guide

The NISM Series-XIII: Common Derivatives Study Guide will provide you complete clarity about the exam questions and how to approach them while preparing you from the scratch. However, for this certification you have to prepare from the workbooks of NISM-Series-I: Currency Derivatives Certification Examination, NISM-Series-IV: Interest Rate Derivatives Certification Examination, and NISM-Series-VIII: Equity Derivatives Certification Examination. There is no separate workbook for this examination, as this is a combined examination of the above-mentioned three examinations (CD, IRD, and ED)

Reference Books

Books are your best friends which provides you with new insights that the study guides may not, giving you an extra edge over others. You can choose any book that suits your way of preparation. However, Make sure the content is understandable and the book offers you a lot of practice questions and has previous test papers. You can choose multiple books and can buy them or can refer to libraries, however, you should always look for books written by credible and authentic domain experts.

NISM e-learning

NISM eLearning offers learners exposure to high quality content, personalized self-paced learning experience that can be accessed anytime from anywhere. It is a rich and rigorous platform that offers a consistent, cohesive, and quality learning experience for learners. The Course content is delivered exclusively via our Learning Management System (LMS). Furthermore, learners will also be able to form meaningful connections with peers and educators which would give them an extra edge over others in their preparation.

Step-3 Join Online Communities

Joining an Online Community is certainly an ideal way to know your actual stand in the competition. Here, you can interact with your competitors, and keep yourself focused. Also, multiple viewpoints make the stuff more dynamic and expand your horizon. Moreover, these groups will help you stay up to date with the exam and will also boost your confidence and self-esteem.

Step-4 Practice tests

Once you are done with your preparation phase, your performance phase begins. This phase is also referred to as the self-evaluation phase as it helps you find out your core strengths and weak spots and help you prepare better. They also help you build confidence and learn time management. Moreover, Practice tests are designed in such a manner that it helps the candidates to encounter the real exam environment around them and also give them an idea about what type of questions will be expected in the actual exam. Take the NISM Series-XIII: Common Derivatives Practice Test Now!