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

Which of the following is a correct sales practice for a person advising a client on equity derivatives?

The correct practice is assessing the client's financial position and risk appetite before recommending derivative products. This suitability check ensures the leveraged instruments suit the client, whereas assuring returns, chasing brokerage or hiding losses breaches ethical and regulatory standards.

  1. AAssuring the client of fixed returns from option selling
  2. BAssessing the client's financial position and risk appetite before recommending derivative productsCorrect
  3. CRecommending a position solely because it earns higher brokerage
  4. DAdvising the client to hide losses from the account statement

Explanation

Suitability requires understanding the client's financial position, experience and risk tolerance before recommending derivatives. Guaranteeing returns, churning for brokerage and concealing losses are unethical or prohibited.

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