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

Which of the following best describes the suitability obligation of a stock broker or distributor recommending derivatives to a client?

The intermediary must recommend derivatives only after assessing the client's risk profile, financial position and understanding of the product. Suitability and clear risk disclosure protect investors, whereas pushing high-brokerage or uniform products, or hiding risks, breaches sales practice norms.

  1. ARecommend products only after assessing the client's risk profile, financial position and understanding of the productCorrect
  2. BRecommend the product with the highest brokerage so that costs are covered
  3. CRecommend the same strategy to all clients to maintain uniformity
  4. DAvoid explaining risks to prevent discouraging the client

Explanation

Sales practices require that recommendations suit the client's risk appetite, financial capacity and knowledge. Pushing high-brokerage products, uniform advice and hiding risks all violate suitability and fair disclosure norms.

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