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

Before opening a derivatives trading account for a client, a trading member collects the client's financial details such as income and net worth. What is the main purpose of obtaining this information?

The main purpose is to assess the client's suitability and risk-bearing capacity for derivatives. Income and net worth information shows whether the client can afford potential losses, so the member can advise appropriately. Brokerage, lot size and settlement dates are not determined by this information.

  1. ATo assess the client's suitability and risk-bearing capacity for derivativesCorrect
  2. BTo fix the brokerage rate payable by the client
  3. CTo determine the lot size of contracts the client may trade
  4. DTo decide the settlement date for the client's trades

Explanation

Financial details help the member judge whether derivatives are suitable for the client and what exposure the client can bear. Brokerage, lot size and settlement dates are set by other considerations and are not derived from the client's income details.

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