SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003
9 questions. Each answer is explained.
Question 1 of 9Practice · Series III-A — Securities Intermediaries Compliance (Non-Fund)
0 right · 0 wrong · 9 to go
A–D or 1–4 to answer · Enter or → for the next question · ← to go back
Learn these topics
More units in NISM Series III-A
- Introduction to the Financial System8
- Regulatory Framework – General View14
- Introduction to Compliance6
- 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
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 9 questions on SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, with answers
Q1What is the main market-integrity concern with trades designed to create artificial trading volume?
Option A. They necessarily create new shares without issuer approval
Why it is wrong: Artificial trading volume does not necessarily involve a new share issue.
Option B. They create a misleading appearance of genuine activity — Correct answer
Option C. They establish a genuine valuation through independent price discovery
Why it is wrong: Activity designed to mislead is not genuine independent price discovery.
Option D. They transfer price risk without affecting market integrity
Why it is wrong: The deceptive appearance is an integrity issue, not merely ordinary risk transfer.
Answer: B. Artificial volume can mislead investors about genuine demand, supply and market activity. Remember: Trading data should reflect genuine market activity rather than an engineered appearance.
Hint, shown before you answer in practice mode: Common mistake: Assuming a trade is harmless merely because the exchange recorded it. Consider what other investors infer from displayed trading activity.
III-A-064easyconceptual
Q2Related accounts trade shares back and forth without a genuine ownership change to inflate turnover. Which conduct is indicated?
Option A. Front-running
Why it is wrong: Front-running involves trading ahead of confidential order information, which is not the stated pattern.
Option B. Wash trading — Correct answer
Option C. Churning
Why it is wrong: Churning concerns unnecessary trading to generate commissions, not this artificial ownership pattern.
Option D. A genuine cross trade
Why it is wrong: A genuine cross trade has a legitimate purpose and is not designed to inflate turnover deceptively.
Answer: B. The described trades indicate wash trading because they manufacture volume without genuine economic ownership change. Remember: Examine the economic substance of trades, not only separate account names.
Hint, shown before you answer in practice mode: Common mistake: Treating separate account identifiers as proof of independent trading. Focus on economic ownership and the purpose of the repeated trades.
III-A-065mediumapplication
Q3A dealer learns of a large confidential client order and trades first to benefit from its expected price effect. What is this conduct?
Option A. Wash trading
Why it is wrong: The facts do not describe trades intended to create artificial turnover without genuine ownership change.
Option B. Churning
Why it is wrong: The facts do not describe unnecessary trading mainly to collect commissions.
Option C. Legitimate client-order execution
Why it is wrong: The dealer is exploiting confidential order information before executing the client’s order.
Option D. Front-running — Correct answer
Answer: D. This is front-running because the dealer trades ahead using confidential information about the impending client order. Remember: Confidential order information must not be used to trade ahead of the client.
Hint, shown before you answer in practice mode: Common mistake: Confusing early execution based on public analysis with trading on a confidential order. Notice whose non-public trading information creates the advantage.
III-A-066mediumapplication
Q4A group spreads false positive claims to raise a share price, then sells its holdings to attracted investors. What pattern is described?
Option A. A front-running arrangement
Why it is wrong: The scheme depends on false publicity rather than advance knowledge of a client order.
Option B. A legitimate price-stabilisation operation
Why it is wrong: False claims followed by selling to misled investors are not legitimate price stabilisation.
Option C. A pump-and-dump scheme — Correct answer
Option D. An ordinary market-making transaction
Why it is wrong: Ordinary market making does not justify deceptive claims used to inflate the price.
Answer: C. The pattern is pump-and-dump because false promotion is used to raise the price before the promoters of the scheme sell. Remember: False promotion combined with selling can form a manipulative scheme.
Hint, shown before you answer in practice mode: Common mistake: Judging a promotional message without examining the promoter’s trading interest. Link the misleading publicity to the group’s planned exit.
III-A-067mediumapplication
Q5A trader places large orders with no intention to execute them, aiming to mislead others, then cancels them. What is the concern?
Option A. Creating false demand or supply — Correct answer
Option B. A violation arising from every cancelled order
Why it is wrong: Cancellation alone is not necessarily misconduct, but the stated deceptive purpose matters.
Option C. A genuine hedge based solely on executed positions
Why it is wrong: The orders are placed to mislead rather than genuinely hedge an exposure.
Option D. An exemption because the false orders did not execute
Why it is wrong: Cancellation before execution does not automatically remove the deceptive conduct.
Answer: A. The concern is a false market signal created by orders entered without genuine trading intent. Remember: Order-book conduct can be manipulative even without completed trades.
Hint, shown before you answer in practice mode: Common mistake: Assuming no execution means no possible manipulation. Distinguish the stated deceptive intention from an ordinary genuine cancellation.
III-A-068mediumapplication
Q6A broker induces repeated unnecessary trades solely to earn commissions. Which abusive practice is most closely described?
Option A. Front-running
Why it is wrong: Front-running exploits knowledge of an upcoming order rather than repeated commission-driven trading.
Option B. Churning — Correct answer
Option C. Wash trading
Why it is wrong: Wash trading concerns artificial activity rather than this commission-driven pattern.
Option D. Authorised rebalancing
Why it is wrong: Genuine authorised rebalancing serves the client’s needs rather than unnecessary commission generation.
Answer: B. Churning involves inducing unnecessary or excessive trading to generate brokerage rather than serve the client. Remember: Client trading must not be manufactured solely to generate commissions.
Hint, shown before you answer in practice mode: Common mistake: Treating high turnover as evidence of good service without examining its purpose. Compare the client’s purpose with the broker’s fee incentive.
III-A-069mediumapplication
Q7Two independent investors place genuine orders that happen to match. There is no deceptive arrangement or manipulative purpose. What is the sound conclusion?
Option A. Every matched exchange trade is necessarily fraudulent
Why it is wrong: Matching is a normal feature of exchange trading.
Option B. A profitable matched trade must be cancelled
Why it is wrong: Profit alone does not establish that a genuine matched trade is unlawful.
Option C. Matching alone does not establish fraudulent trading — Correct answer
Option D. Matching automatically proves a hidden common owner
Why it is wrong: A match does not by itself establish beneficial ownership links.
Answer: C. Matching alone is insufficient because ordinary exchange trading also matches genuine independent orders. Remember: Assess intention, relationships and economic substance before concluding manipulation.
Hint, shown before you answer in practice mode: Common mistake: Calling every synchronised-looking or matched trade fraudulent. Separate normal market matching from evidence of a manipulative arrangement.
III-A-070hardapplication
Q8A person deliberately hides a material fact to induce a securities transaction. No explicit false statement is spoken. Can the conduct still constitute fraud?
Option A. No, fraud requires a spoken false statement
Why it is wrong: The definition is not limited to spoken statements.
Option B. No, silence always protects the person from liability
Why it is wrong: Silence used deceptively is not an automatic safe harbour.
Option C. Yes, deliberate deceptive concealment can fall within fraud — Correct answer
Option D. Yes, but only if a physical share certificate is forged
Why it is wrong: Forgery of a physical certificate is not a necessary condition for this conduct.
Answer: C. Deliberate deceptive concealment can fall within fraud even without an express spoken falsehood. Remember: Fraud can involve deceptive acts, omissions or concealment.
Hint, shown before you answer in practice mode: Common mistake: Looking only for a false sentence and overlooking a deceptive omission. Consider whether deception can occur through omission as well as words.
III-A-071hardapplication
Q9A trader places small aggressive trades near the close solely to distort the closing price used for portfolio valuation. Which issue is central?
Option A. An automatic exemption because each trade is small
Why it is wrong: Small trade size does not by itself create an exemption for manipulation.
Option B. A mandatory change in the issuer’s face value
Why it is wrong: Trading at the close does not change a share’s face value.
Option C. A lawful valuation method based only on executed prices
Why it is wrong: Execution on an exchange does not make a manipulative purpose lawful.
Option D. Manipulation of the closing price — Correct answer
Answer: D. The central issue is closing-price manipulation because the trades are intended to create an artificial valuation reference. Remember: Genuine execution does not excuse a scheme to distort a market price.
Hint, shown before you answer in practice mode: Common mistake: Assuming a price is reliable merely because a trade printed at that price. Consider the purpose behind the trades and the benchmark they affect.
III-A-072hardapplication
SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003: common questions
How many practice questions are there on SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003?
9 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 SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003?
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.
Prevention of Money Laundering Act, 2002
11 questions on Prevention of Money Laundering Act, 2002. Its quiz opens on that unit.
Open Prevention of Money Laundering Act, 2002Paper Trading Try it on the practice trading desk