NISM Certifications · NISM-Series-VIII: Equity Derivatives · Sales Practices and Investors Protection Services
Which statement best describes the suitability obligation of a person selling equity derivatives to a retail client?
The seller must recommend products that match the client's risk profile, financial situation and objectives, placing client interest above commission. Obtaining a signature or handing over a circular does not satisfy suitability, and it applies to retail clients, not just institutions.
- AThe seller should recommend products matching the client's risk profile, financial situation and objectives, even if a higher-commission product is availableCorrect
- BThe seller may recommend any product that gives the highest brokerage as long as the client signs the form
- CSuitability only applies to institutional clients
- DSuitability is satisfied by giving the client the exchange circular
Explanation
Suitability requires the recommendation to fit the client's profile and objectives, putting client interest ahead of commission. Signing forms or handing out circulars does not discharge it, and it is not limited to institutions.
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