Introduction to Compliance
6 questions. Each answer is explained.
Question 1 of 6Practice · Series III-A — Securities Intermediaries Compliance (Non-Fund)
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Learn these topics
More units in NISM Series III-A
- Introduction to the Financial System8
- Regulatory Framework – General View14
- Securities and Exchange Board of India Act, 199211
- Securities Contracts (Regulation) Act, 1956 and Rules, 19576
- SEBI (Intermediaries) Regulations, 20089
- SEBI (Prohibition of Insider Trading) Regulations, 20159
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 20039
- Prevention of Money Laundering Act, 200211
- SEBI (KYC Registration Agency) Regulations, 20113
- SEBI (Foreign Portfolio Investors) Regulations, 20195
- SEBI (Stock Brokers) Regulations, 19929
- SEBI (Merchant Bankers) Regulations 1992, etc.9
- SEBI (Issue of Capital and Disclosure Requirements) Regulations 20189
- Depositories Act 19963
- SEBI (Depositories and Participants) Regulations 20184
- SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 19934
- SEBI (Research Analyst) Regulations, 20143
- SEBI (Investment Advisers) Regulations, 20133
- SEBI (Debenture Trustees) Regulations, 19934
- SEBI (Credit Rating Agencies) Regulations, 19994
- SEBI (Custodian) Regulations, 19964
- Proxy Advisors3
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 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 III-A Securities Intermediaries Compliance (Non-Fund)
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 6 questions on Introduction to Compliance, with answers
Q1What is the main purpose of a securities intermediary’s compliance function?
Option A. Supporting adherence to applicable obligations — Correct answer
Option B. Selecting the highest-return investments for every client
Why it is wrong: Client investment selection is not the compliance function’s main purpose.
Option C. Certifying that every commercial decision will be profitable
Why it is wrong: Compliance cannot certify that commercial decisions will generate profits.
Option D. Performing the statutory duties assigned only to SEBI
Why it is wrong: An internal compliance function does not replace the regulator’s statutory role.
Answer: A. The compliance function helps the intermediary meet its legal, regulatory and internal obligations. Remember: Compliance supports lawful and controlled conduct of the business.
Hint, shown before you answer in practice mode: Common mistake: Treating compliance as a sales approval or profit-guarantee function. Think about the function’s role within the organisation.
III-A-023easyconceptual
Q2A business head can delete compliance findings before the board sees them. Which governance weakness is most direct?
Option A. An error in capital-adequacy computation
Why it is wrong: The facts concern suppression of findings, not a capital calculation.
Option B. Inadequate segregation of client securities
Why it is wrong: No mixing of client securities is described.
Option C. Incomplete verification of customer identity
Why it is wrong: No customer-identification failure is described.
Option D. Lack of independent compliance escalation — Correct answer
Answer: D. Independent escalation is weakened when the business can suppress compliance findings. Remember: Compliance needs a reporting route that cannot be blocked by the business it reviews.
Hint, shown before you answer in practice mode: Common mistake: Confusing a compliance job title with actual reporting independence. Consider whether compliance can report concerns without business interference.
III-A-024mediumapplication
Q3A firm blocks an order before entry when mandatory approval is missing. What type of control is this?
Option A. A preventive control — Correct answer
Option B. A detective control
Why it is wrong: A detective control identifies an event after or while it occurs rather than blocking entry here.
Option C. A retrospective audit opinion
Why it is wrong: An audit opinion reports an assessment rather than stopping this order.
Option D. A post-loss recovery action
Why it is wrong: Recovery occurs after a loss rather than before order entry.
Answer: A. The control is preventive because it stops the unapproved order before it enters the system. Remember: Preventive controls stop an error or breach before it occurs.
Hint, shown before you answer in practice mode: Common mistake: Calling every computer-generated alert a detective control. Focus on when the control acts relative to the prohibited event.
III-A-025mediumapplication
Q4An end-of-day report identifies orders entered without required approvals. What type of control does the report mainly provide?
Option A. A preventive order block
Why it is wrong: The report does not block the original order before entry.
Option B. A statutory exemption
Why it is wrong: Finding a breach does not create a legal exemption.
Option C. A detective control — Correct answer
Option D. A client-authorisation mechanism
Why it is wrong: The report does not itself authorise the client’s transaction.
Answer: C. The report is detective because it identifies transactions that have already occurred. Remember: Detection should lead to investigation and correction, not merely report generation.
Hint, shown before you answer in practice mode: Common mistake: Assuming an exception report prevents the events it lists. Check whether the transactions have already happened.
III-A-026mediumapplication
Q5A firm outsources account processing to a service provider. Who retains responsibility for the firm’s regulatory compliance?
Option A. Only the service provider
Why it is wrong: The provider’s contract does not remove the firm’s regulatory responsibility.
Option B. Only the affected client
Why it is wrong: A client does not assume the intermediary’s compliance obligations.
Option C. Only the software developer
Why it is wrong: Writing software does not transfer all regulatory accountability to its developer.
Option D. The regulated firm — Correct answer
Answer: D. The regulated firm retains accountability even when another party performs an operational task. Remember: Outsourcing work does not outsource the regulated firm’s accountability.
Hint, shown before you answer in practice mode: Common mistake: Assuming a service contract transfers the intermediary’s legal duties. Distinguish delegating a task from transferring accountability.
III-A-027mediumapplication
Q6A product disclosure is technically accurate but hides a major risk in barely readable text. Clients misunderstand the risk. Which response best meets fair conduct?
Option A. Keep the layout because each sentence is accurate
Why it is wrong: Literal accuracy does not cure an overall misleading presentation.
Option B. Rely only on the client’s standard acknowledgement
Why it is wrong: A standard acknowledgement does not repair an unclear risk disclosure.
Option C. Remove the risk wording to simplify the document
Why it is wrong: Removing the risk would worsen the information gap.
Option D. Make the risk prominent and understandable before use — Correct answer
Answer: D. The disclosure should be clear and prominent because fair communication requires a balanced, understandable message. Remember: Meaningful disclosure requires clarity as well as factual accuracy.
Hint, shown before you answer in practice mode: Common mistake: Treating unreadable fine print as effective disclosure. Consider the overall message received by the client, not just literal accuracy.
III-A-028hardapplication
Introduction to Compliance: common questions
How many practice questions are there on Introduction to Compliance?
6 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 23 practice topics for NISM Series III-A, which has 150 questions in total.
Are these real NISM Series III-A questions on Introduction to Compliance?
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 III-A?
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.
Securities and Exchange Board of India Act, 1992
11 questions on Securities and Exchange Board of India Act, 1992. Its quiz opens on that unit.
Open Securities and Exchange Board of India Act, 1992Paper Trading Try it on the practice trading desk