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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment

A trading member's client wants to trade in index futures. Which statement about the member's obligations under the regulatory framework is correct?

Before a client trades in derivatives, the trading member must execute the prescribed member-client agreement and give the Risk Disclosure Document. These cannot be waived for experienced clients, and full contract value is not required upfront, since margins apply.

  1. AThe member need not execute a written agreement with the client if the client trades only through phone orders
  2. BThe member must enter into the mandatory Member-Client agreement and provide the Risk Disclosure Document before tradingCorrect
  3. CThe member may waive the Risk Disclosure Document for experienced clients
  4. DThe member may accept a client's orders only after the client deposits the full contract value in cash

Explanation

Brokers must sign the prescribed member-client agreement and give the Risk Disclosure Document to every client in derivatives, regardless of experience. Full contract value in cash is not required; margins apply. Waiver is not permitted.

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