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

Which of the following is a feature of the regulatory treatment of a stock exchange's derivatives segment in India?

Derivative contracts are legally valid when traded on a recognised stock exchange under the Securities Contracts (Regulation) Act, which classifies derivatives as securities. Private bilateral equity derivative contracts do not enjoy this status, and index derivatives are regulated as well.

  1. ADerivative contracts are valid only if traded on a recognised stock exchange or clearing corporation-guaranteed segment, as per the Securities Contracts (Regulation) ActCorrect
  2. BAny bilateral equity derivative contract between two private parties is valid and enforceable
  3. CDerivatives trading is unregulated if the underlying is an index
  4. DDerivatives are permitted only in physical delivery form

Explanation

Under the SCRA, derivatives are securities, and contracts in them are valid only when traded on recognised exchanges. Private bilateral equity derivatives are not enforceable in this way, index underlying is regulated too, and cash settlement is permitted.

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