Skip to content

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

A trading member's sales person recommends equity derivatives to a retail client. Which of the following practices is consistent with the 'know your client' and suitability approach expected in derivatives sales?

The appropriate practice is to assess the client's financial position, experience and risk appetite before recommending a derivatives product. Suitability protects investors from taking leveraged positions they cannot bear, whereas brokerage-driven advice, guaranteed returns or misuse of client funds are prohibited.

  1. AAssessing the client's financial position, experience and risk appetite before recommending a derivatives productCorrect
  2. BRecommending the product that gives the member the highest brokerage regardless of the client's profile
  3. CGuaranteeing a minimum return on the client's futures position to build confidence
  4. DUsing the client's funds for proprietary trading with verbal consent only

Explanation

Suitability requires the intermediary to understand the client's financial situation, trading experience and risk tolerance before recommending products. Recommending based on brokerage, guaranteeing returns, or using client funds without proper authority are improper practices.

Did you get it right without looking?

One question tells you little. A timed set on Sales Practices and Investors Protection Services shows your real accuracy, how long you take and where you lose marks.

Practise Sales Practices and Investors Protection ServicesFree diagnostic mock

More Sales Practices and Investors Protection Services questions