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

Under the Securities Contracts (Regulation) Act, 1956, derivative contracts are treated as valid and legally enforceable when they are:

Derivative contracts are legally valid under the SCRA when traded on a recognised stock exchange and settled through its clearing corporation according to the exchange rules and bye-laws. Private contracts outside an exchange do not get this recognition, and neither physical delivery nor bank-only participation is required.

  1. ATraded on a recognised stock exchange and settled through its clearing corporation, as per its rules and bye-lawsCorrect
  2. BEntered into privately between any two parties without any exchange
  3. CSettled only by physical delivery of the underlying
  4. DTraded only by banks and financial institutions

Explanation

The SCRA includes derivatives in the definition of securities, and such contracts are legal and valid if traded on a recognised exchange and settled through the clearing corporation per its rules. Private over-the-counter contracts in securities do not get this protection, and physical settlement is not a requirement.

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