Code of Conduct and Investor Protection Measures in Interest Rate Derivatives
6 questions. Each answer is explained.
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Learn these topics
More units in NISM Series IV
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Market30
- Interest Rate Derivatives10
- Exchange Traded Interest Rate Futures20
- Exchange Traded Interest Rate Options22
- Strategies Using Exchange Traded Interest Rate Futures and Options24
- Trading Mechanism in Exchange Traded Interest Rate Derivatives10
- Clearing, Settlement and Risk Management of Interest Rate Derivatives16
- Regulatory Framework for Interest Rate Derivatives8
- Accounting and Taxation of Interest Rate Derivatives4
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 IV Interest Rate Derivatives
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 Code of Conduct and Investor Protection Measures in Interest Rate Derivatives, with answers
Q1A client’s written authorisation permits a broker only to transfer specified securities for settlement of the client’s instructed trades. The broker relies on it to initiate unrelated speculative IRD trades without instructions. Is that activity within the authority described?
Option A. Yes. Every limited authorisation automatically becomes a discretionary trading mandate
Why it is wrong: This invents a power absent from the stated document.
Option B. Yes, because derivatives never require attention to client instructions
Why it is wrong: The product label does not remove the need for proper authority.
Option C. No. Settlement-transfer authority does not include the unstated discretionary trading power — Correct answer
Option D. Yes, provided the broker expects the unauthorised trade to be profitable
Why it is wrong: Expected profitability does not expand the authorisation.
Answer: C. The scope given in the question is limited to settlement transfers for instructed transactions. Starting new speculative trades is a different act and is not authorised by that wording. The answer rests on the explicit document scope. It does not invent a mandatory PoA format or claim that every client must execute a PoA. Remember: Read the actual scope of an authorisation rather than infer unlimited powers from its existence.
Hint, shown before you answer in practice mode: Common mistake: Treating a settlement-related authority as blanket discretionary trading permission.
IV-145mediumconceptual
Q2What is the principal operational purpose of linking verified client identity with a unique client code when processing IRD trades?
Option A. To certify that every trade entered by the client will be profitable
Why it is wrong: Identification is not a guarantee of investment performance.
Option B. To attribute trades and obligations to the correct identified client — Correct answer
Option C. To eliminate all future margin requirements
Why it is wrong: KYC and margin serve different purposes.
Option D. To allow unrelated clients to trade under one interchangeable identity
Why it is wrong: That defeats the purpose of client identification and traceability.
Answer: B. KYC establishes who the client is, while a unique client identifier helps connect transactions and obligations to that client in operational records. These controls assist proper allocation and oversight, but do not substitute for investment judgement or clearing safeguards. No specific document list or verification deadline is assumed in this item. Remember: Identification, trade attribution and margin collection are complementary controls.
Hint, shown before you answer in practice mode: Common mistake: Assuming successful onboarding removes the risks or obligations of later trades.
IV-146easyconceptual
Q3Which statement should a prospective interest-rate-futures client understand before trading?
Option A. A futures position cannot lose money as long as the client closes it before expiry
Why it is wrong: An offsetting trade can realise a loss well before expiry.
Option B. Signing the risk-disclosure acknowledgement guarantees recovery of all trading losses
Why it is wrong: Acknowledging risk is not insurance or an indemnity.
Option C. Posting initial margin fixes the maximum possible loss on the position at that amount
Why it is wrong: Margin is security for obligations, not a loss ceiling.
Option D. Adverse price moves can cause losses and cash calls beyond the initial margin paid — Correct answer
Answer: D. Risk disclosure should communicate economically relevant risks, including leverage, adverse price changes and the need to fund settlement payments. A signature is not a guarantee, and closing before expiry does not ensure a favourable price. Understanding the obligation structure matters more than treating disclosure as a formality at account opening. Remember: Risk disclosure must explain the consequences of the product, not simply collect an acknowledgement.
Hint, shown before you answer in practice mode: Common mistake: Equating the cash initially deposited with the maximum possible exposure.
IV-147mediumconceptual
Q4After a client approaches the intermediary about a disputed IRD transaction, the dispute remains unresolved and subsequent conciliation is unsuccessful. Which statement correctly distinguishes available redressal functions?
Option A. A grievance platform helps handle complaints, while eligible unresolved disputes may go to arbitration — Correct answer
Option B. Arbitration means placing an opposite trade in the market to recover the loss on the disputed deal
Why it is wrong: Arbitration is dispute adjudication, not a trading strategy.
Option C. A complaint must always be resolved by the original dealer, with no external recourse for the client
Why it is wrong: Eligible cases can use the established external redressal framework.
Option D. Filing a complaint on the grievance platform automatically guarantees payment of the full amount claimed
Why it is wrong: Neither filing nor tracking alone establishes the merits or amount payable.
Answer: A. SEBI’s SCORES framework asks investors to approach the concerned entity first and supports eligible complaint redressal. NSE’s described ODR process provides for arbitration after unresolved conciliation. Neither step is an automatic compensation award. The proper route and outcome depend on the dispute’s eligibility, facts and applicable procedure. No unverified deadline is asserted here. Remember: Use the relevant complaint and dispute-resolution route rather than treat redressal as a guaranteed reimbursement.
Hint, shown before you answer in practice mode: Common mistake: Confusing a grievance’s registration with a determination that the claim is payable.
IV-148mediumconceptual
Q5A client compares two cases: an admitted claim after a member’s default with insufficient member assets, and an ordinary loss on a correctly executed futures trade. Which statement best describes the Investor Protection Fund’s purpose?
Option A. It guarantees the client’s target return on all derivatives traded through the member
Why it is wrong: No such return guarantee follows from the fund’s purpose.
Option B. It replaces the need for the client to lodge and establish an admissible claim after a default
Why it is wrong: Eligibility and claim procedures still matter.
Option C. It may cover eligible admitted claims from a member’s default, not routine market losses — Correct answer
Option D. It refunds every trading loss once the trade is shown on a valid contract note
Why it is wrong: A valid trade record does not turn an adverse price move into an eligible default claim.
Answer: C. The inspected NSE description links IPF assistance to admitted claims where a defaulting or expelled member’s assets are insufficient, subject to the framework. A normal market loss is a different event. The question does not quote a compensation ceiling because eligibility, current limits and the precise claim circumstances must be checked separately. Remember: Investor protection funds address defined failures, not unsuccessful investment decisions.
Hint, shown before you answer in practice mode: Common mistake: Assuming “investor protection” means all capital or trading outcomes are guaranteed.
IV-149mediumconceptual
Q6Under the AML reporting topic specified in the Series IV objectives, Suspicious Transaction Reports are directed to which Indian body?
Option A. Financial Intelligence Unit–India (FIU-IND) — Correct answer
Option B. The bond issuer’s statutory auditor
Why it is wrong: An issuer’s auditor is not the STR recipient identified in the NISM objective.
Option C. The broker’s clearing bank as the final statutory recipient
Why it is wrong: The destination asked for is FIU-IND, not the bank used for settlement.
Option D. The exchange’s investor grievance cell
Why it is wrong: Investor complaints and statutory suspicious-transaction reporting use different reporting channels.
Answer: A. The official NISM objective expressly includes Suspicious Transaction Reporting to the Financial Intelligence Unit. The item tests the recipient, not whether a particular trade is suspicious, who may disclose a report, or the filing deadline. Those procedural questions require the applicable AML rules and entity-specific compliance process rather than inference from the term STR. Remember: Distinguish statutory AML reporting from market research, rating and issuer communication.
Hint, shown before you answer in practice mode: Common mistake: Sending a regulatory report to a market-service provider instead of the specified authority.
IV-150easyconceptual
Code of Conduct and Investor Protection Measures in Interest Rate Derivatives: common questions
How many practice questions are there on Code of Conduct and Investor Protection Measures in Interest Rate Derivatives?
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 10 practice topics for NISM Series IV, which has 150 questions in total.
Are these real NISM Series IV questions on Code of Conduct and Investor Protection Measures in Interest Rate Derivatives?
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 IV?
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 IV
This is the last unit of Interest Rate Derivatives. The series page runs one quiz across every unit.
Open the NISM Series IV practice page