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

Which of the following is the most appropriate practice for a derivatives sales person when dealing with a client who has little market knowledge and a low risk appetite?

The sales person should first assess the client's suitability and explain the risks before recommending any derivatives product. Naked option writing, heavy leverage and assured returns are inappropriate for a low-risk, inexperienced client.

  1. AAssess suitability and explain risks before recommending any derivatives productCorrect
  2. BRecommend naked option writing to earn premium income
  3. CAdvise heavy leverage in index futures to build wealth quickly
  4. DPromise a minimum assured return on the position

Explanation

Suitability and risk explanation are required by sales practice norms. Naked writing and heavy leverage expose a low-risk client to large losses, and assuring returns is prohibited misconduct.

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