NISM Certifications · NISM-Series-VIII: Equity Derivatives · Sales Practices and Investors Protection Services
Which practice by a derivatives sales person is most clearly in breach of ethical sales practices?
Guaranteeing a fixed monthly return from option selling is a breach of ethical sales practice. Derivative returns are uncertain and losses can be unlimited for sellers, so assured returns are misleading. Disclosing risk, charges and assessing suitability are expected conduct.
- AExplaining that losses can exceed the margin paid
- BRecommending a strategy after assessing the client's risk profile
- CGuaranteeing a client a fixed monthly return from option sellingCorrect
- DInforming the client about brokerage and other charges
Explanation
Assuring or guaranteeing returns in derivatives is misleading, as outcomes are uncertain and losses can be large. The other three actions are proper disclosure and suitability practices.
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