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

A trading member's client wishes to trade in index options but has never traded derivatives. Before the client starts trading, which document must the member obtain and which must the client be given, as per the standard derivatives account opening practice?

The member must obtain the client's acknowledgement of the risk disclosure document for derivatives and give the client the rights and obligations document. These documents make the client aware of the risks and of the mutual obligations, so PAN, bank statements or verbal declarations alone are insufficient.

  1. AOnly a PAN copy, with no other documents
  2. BA signed risk disclosure document for derivatives, with the client given a copy of the rights and obligations documentCorrect
  3. COnly a bank statement of the last six months
  4. DOnly a verbal declaration of understanding of risks

Explanation

Exchange and SEBI norms require a Risk Disclosure Document to be given to and acknowledged by clients dealing in derivatives, along with the rights and obligations document. A PAN copy alone, a bank statement alone or a verbal declaration does not meet these requirements.

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