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

A trading member is asked by a client to execute a trade in index options. Before the client begins trading in derivatives, which document must the member ensure is provided to and acknowledged by the client?

The client must be given the risk disclosure document for the equity derivatives segment and acknowledge it. It informs the client about the high risks of leveraged derivatives trading, such as possible losses exceeding the margin, before trading begins.

  1. ARisk disclosure document for the equity derivatives segmentCorrect
  2. BAnnual report of the stock exchange
  3. CAudited balance sheet of the clearing corporation
  4. DProspectus of the underlying index constituents

Explanation

Brokers must give clients a risk disclosure document explaining the risks of derivatives trading and obtain acknowledgement. The other documents are not required to be furnished at account opening for derivatives.

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