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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Sales Practices and Investors Protection Services

A client with limited knowledge of derivatives asks an agent to recommend a highly leveraged position in index options because a friend made large profits. Which action best reflects proper sales practice?

The agent should assess the client's suitability, clearly explain the risks, including the potential for large losses, and recommend only products matching the client's profile. Guaranteeing returns or following a friend's success ignores suitability, which is central to sales practices and investor protection.

  1. ARecommend the position since the friend was successful
  2. BAssess the client's suitability, explain the risks including possible loss of the entire premium or more, and recommend only what suits the profileCorrect
  3. CAdvise the client to put all savings into it for maximum gain
  4. DGuarantee a minimum return to persuade the client

Explanation

Suitability and disclosure of risks are core sales practice principles. Guaranteeing returns, relying on others' results or encouraging excessive exposure are improper and violate investor protection norms.

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