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

Which statement about the investor protection arrangements at stock exchanges for derivatives trading is correct?

The Investor Protection Fund is maintained by the exchange to compensate investors when a defaulting member's assets are insufficient to meet admitted claims. It does not cover ordinary market losses or guarantee profits, and it is not funded individually by clients.

  1. AThe Investor Protection Fund is maintained by the exchange to compensate investors where a defaulting member's assets are insufficient to meet admitted claimsCorrect
  2. BThe Investor Protection Fund guarantees profits on every derivatives trade
  3. CInvestors can claim from the fund for any market losses caused by price movement
  4. DThe fund is maintained by clients individually and not by the exchange

Explanation

Exchanges maintain an Investor Protection Fund used to compensate clients of defaulting or expelled members up to specified limits when the member's assets fall short. It does not cover market losses or guarantee profits, and clients do not maintain it.

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