Sales Practices, Code of Conduct and Investor Protection Measures
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Question 1 of 5Practice · Series XIII — Common Derivatives
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Learn these topics
More units in NISM Series XIII
- Basics of Derivatives (Equity, Currency and Interest Rate)6
- Introduction to the Underlying Markets24
- Introduction to Forwards and Futures20
- Strategies Using Futures24
- Introduction to Options – Options on Equities and Currencies22
- Option Trading Strategies – Strategies using Equity Options and Currency options4
- Introduction to Trading, Clearing, Settlement & Risk Management25
- Legal and Regulatory Environment14
- Accounting and Taxation of Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XIII Common Derivatives
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 5 questions on Sales Practices, Code of Conduct and Investor Protection Measures, with answers
Q1What is the main purpose of client KYC before allowing derivatives activity?
Option A. Identify and verify the client as the rules require — Correct answer
Option B. Guarantee that every client earns a profit
Why it is wrong: KYC does not guarantee returns.
Option C. Replace the need for any risk disclosure
Why it is wrong: KYC complements rather than replaces risk disclosure.
Option D. Predict the exact price movement for the client
Why it is wrong: KYC cannot forecast markets.
Answer: A. Know Your Customer procedures establish and verify relevant client identity and other required information. Remember: Identity verification is a foundational client safeguard.
Hint, shown before you answer in practice mode: Common mistake: Completing KYC does not make a derivative risk-free. Think about identifying the investor properly.
XIII-146easyregulatory
Q2A new client has limited knowledge and cannot afford large losses. What is the most appropriate step before explaining leveraged derivatives?
Option A. Promise that futures margins are the maximum possible loss
Why it is wrong: Futures losses can exceed initial margin.
Option B. Assume all new clients have identical risk capacity
Why it is wrong: Client circumstances differ substantially.
Option C. Recommend the highest leveraged position without discussion
Why it is wrong: High leverage without assessment is unsuitable.
Option D. Assess financial capacity, experience and risk tolerance — Correct answer
Answer: D. Risk profiling considers the client's capacity, experience and tolerance before discussing complex products. Remember: Risk profiling precedes responsible product discussion.
Hint, shown before you answer in practice mode: Common mistake: Initial margin is not a loss ceiling. Consider suitability and financial risk tolerance.
XIII-147mediumapplication
Q3A salesperson describes option writing as income without downside risk. Which response meets responsible sales practice?
Option A. Repeat the statement without qualification
Why it is wrong: Repeating a misleading claim is not suitable risk disclosure.
Option B. Tell the client that clearing eliminates all market losses
Why it is wrong: Clearing does not remove market risk.
Option C. Explain the premium received and potentially substantial losses — Correct answer
Option D. Hide possible margin increases during volatile markets
Why it is wrong: Margin increases are important to understand.
Answer: C. Responsible communication discloses material risks, including writer losses and potential margin demands. Remember: Option selling has obligations as well as premium income.
Hint, shown before you answer in practice mode: Common mistake: Do not market option premium as guaranteed income. Distinguish receiving premium from accepting obligation.
XIII-148mediumapplication
Q4An investor has an unresolved complaint against a regulated intermediary. What is the usual first step before using SEBI's SCORES system?
Option A. Publish the investor's private identity on social media
Why it is wrong: Publicly revealing personal details does not follow the redressal process.
Option B. Raise the grievance with the intermediary concerned — Correct answer
Option C. Wait until the investment becomes profitable
Why it is wrong: Complaint rights are not conditional on making profit.
Option D. Submit the complaint as an anonymous trading order
Why it is wrong: A trading order is not a grievance filing.
Answer: B. SEBI's SCORES process asks investors to first approach the regulated entity's grievance channel before escalating an unresolved issue. Remember: Use the intermediary's grievance route before escalation.
Hint, shown before you answer in practice mode: Common mistake: Do not confuse an order entry screen with a complaint channel. Think about the grievance sequence described by SEBI.
XIII-149mediumregulatory
Q5An investor alleges a trade was executed contrary to instructions. The intermediary's response does not resolve the dispute. Which formal mechanism may address eligible exchange-linked disputes?
Option A. A guaranteed reversal of all past market losses
Why it is wrong: Arbitration does not automatically reverse market losses.
Option B. An automatic waiver of every contractual margin obligation
Why it is wrong: A dispute does not erase all valid margin obligations.
Option C. A promise that the next derivative trade will be profitable
Why it is wrong: Dispute resolution cannot guarantee future trading performance.
Option D. Applicable market dispute-resolution or arbitration procedures — Correct answer
Answer: D. Eligible trading disputes may proceed through the applicable exchange-linked dispute-resolution and arbitration framework. Remember: Formal dispute mechanisms address eligible grievances.
Hint, shown before you answer in practice mode: Common mistake: Arbitration resolves disputes, not market direction. Look for a structured dispute channel rather than an investment outcome.
XIII-150hardapplication
Sales Practices, Code of Conduct and Investor Protection Measures: common questions
How many practice questions are there on Sales Practices, Code of Conduct and Investor Protection Measures?
5 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 10 practice topics for NISM Series XIII, which has 150 questions in total.
Are these real NISM Series XIII questions on Sales Practices, Code of Conduct and Investor Protection Measures?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XIII?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Try a paper on all of NISM Series XIII
This is the last unit of Common Derivatives. The series page runs one quiz across every unit.
Open the NISM Series XIII practice pagePaper Trading Try it on the practice trading desk