Unit study guide · NISM Series XIII
Introduction to Trading, Clearing, Settlement & Risk Management
25 questions in this unit
What this unit covers
- Which order type prioritizes execution rather than a specified maximum buy or minimum sell price?
- What does a limit buy order primarily control?
- What is a central clearing corporation's main role in exchange-traded derivatives?
- In exchange-traded futures, what is the main function of the initial margin requirement?
- What does open interest measure in a futures market?
- What does daily mark-to-market settlement recognize on an open futures position?
- What is the main purpose of a stop-loss order instruction?
- Which item is normally defined in the published specification of an exchange-traded futures contract?
- A trader enters a buy limit order at ₹100 when the best sell offer is ₹99. Which execution is consistent with the limit?
- What is a key feature of an immediate-or-cancel order?
- When two buy limit orders have equal prices, what commonly determines matching priority in a price-time order book?
- A long futures position covers 100 units. Yesterday's settlement was ₹102 and today's is ₹98. What is today's mark-to-market result?
- When a new futures buyer trades with a new futures seller, what normally happens to open interest?
- When two traders close matching existing futures positions, what generally happens to open interest?
- What is the main purpose of maintaining separate client margin records in clearing operations?
- A futures account has ₹25,000 collateral. A ₹4,000 MTM loss is debited. What collateral balance remains before other changes?
- What is the main principle behind scenario-based SPAN margin assessment?
- Why are derivative contract terms sometimes adjusted after a stock split?
- What distinguishes cash settlement from physical settlement of a derivative?
- Why do exchanges monitor unusual concentration of derivatives positions?
- A long futures position covers 100 units. Daily settlements move from ₹101 to ₹95, then ₹105. What is cumulative MTM after two days?
- One client holds 12 long and 5 short contracts of the same fungible expiry and underlying. What is the net open position?
- A collateral account starts with ₹20,000. It loses ₹8,000 and requires ₹15,000 to meet its stated minimum. How much additional collateral is needed?
- Assume a 2-for-1 stock split with a value-neutral option adjustment. A ₹100 strike contract covers 100 shares. What are the adjusted strike and quantity?
- A market buy order fills 60 units at ₹100 and 40 units at ₹102. What is the average execution price per unit?
Key ideas
From the practice bank · 1
Which order type prioritizes execution rather than a specified maximum buy or minimum sell price?
A market order seeks immediate execution at available market prices, subject to market . Remember: Market orders prioritize execution over exact price.
Hint Common mistake: Immediate execution does not guarantee a favorable price. Compare speed against price control.
XIII-101From the practice bank · 2
What does a limit buy order primarily control?
A buy limit order specifies the maximum acceptable execution price. Remember: A limit order provides price control.
Hint Common mistake: A limit price cannot guarantee execution. Think about the buyer's price ceiling.
XIII-102From the practice bank · 3
What is a central clearing corporation's main role in exchange-traded derivatives?
A clearing corporation manages clearing and settlement obligations and associated counterparty risk. Remember: Central clearing supports performance of trades.
Hint Common mistake: Clearing protects settlement processes, not against market direction. Consider what happens after trades are matched.
XIII-103From the practice bank · 4
In exchange-traded futures, what is the main function of the initial margin requirement?
is collateral required to help cover potential losses on an open futures position. Remember: Initial margin supports risk management.
Hint Common mistake: Margin is not a fee or guaranteed maximum loss. Think about collateral rather than .
XIII-104From the practice bank · 5
What does open interest measure in a futures market?
counts contracts that remain open rather than the day's total traded contracts. Remember: Open interest measures outstanding derivatives contracts.
Hint Common mistake: High trading need not raise open interest. Think about positions still outstanding.
XIII-105From the practice bank · 6
What does daily mark-to-market settlement recognize on an open futures position?
Daily mark-to-market recognizes the position's gains or losses using the relevant daily settlement price. Remember: Futures gains and losses can be settled daily.
Hint Common mistake: Do not wait until to recognize every futures movement. Focus on daily changes in futures value.
XIII-106From the practice bank · 7
What is the main purpose of a stop-loss order instruction?
A stop-loss instruction activates an order when its trigger condition is met under exchange and order-type rules. Remember: Stop conditions guide order activation.
Hint Common mistake: A trigger price is not always the fill price. Consider a trigger versus a final execution price.
XIII-107From the practice bank · 8
Which item is normally defined in the published specification of an exchange-traded futures contract?
The contract specification identifies standardized terms such as underlying, quantity and expiry. Remember: Published contract specifications make products comparable.
Hint Common mistake: A contract's standardized terms are not predictions. Think about standard contract details.
XIII-108From the practice bank · 9
A trader enters a buy limit order at ₹100 when the best sell offer is ₹99. Which execution is consistent with the limit?
A buy limit of ₹100 permits execution at ₹99 or another available price no higher than ₹100. Remember: A buy limit can receive price improvement.
Hint Common mistake: The limit is a ceiling, not an exact required fill. Apply the buyer's maximum price rule.
XIII-109From the practice bank · 10
What is a key feature of an immediate-or-cancel order?
An immediate-or-cancel order executes any immediately available portion and cancels the remainder. Remember: IOC prevents resting unmatched quantity.
Hint Common mistake: Partial execution is possible unless a separate fill condition applies. Think about what happens to unmatched quantity.
XIII-110From the practice bank · 11
When two buy limit orders have equal prices, what commonly determines matching priority in a price-time order book?
A price-time priority order book generally favors the order entered earlier among orders with the same price. Remember: Time priority helps decide between equal-price orders.
Hint Common mistake: Higher price priority and earlier time are different levels of matching. Think of ordering equally priced instructions.
XIII-111From the practice bank · 12
A long futures position covers 100 units. Yesterday's settlement was ₹102 and today's is ₹98. What is today's mark-to-market result?
Daily MTM = (98 − 102) × 100 = −₹400. Remember: Daily MTM uses settlement-price change times quantity.
Hint Common mistake: A loss is debited to a long position when price falls. Compare successive settlement prices for a long.
XIII-112From the practice bank · 13
When a new futures buyer trades with a new futures seller, what normally happens to open interest?
One newly opened long matched with one newly opened short creates one additional outstanding contract. Remember: Open interest counts contracts, not both counterparties separately.
Hint Common mistake: Never double count the long and short sides of one contract. Consider whether both sides create outstanding positions.
XIII-113From the practice bank · 14
When two traders close matching existing futures positions, what generally happens to open interest?
A closing long paired with a closing short typically removes one outstanding contract. Remember: Open interest falls when an outstanding contract is closed on both sides.
Hint Common mistake: Trading volume can rise while open interest falls. Think about eliminating an outstanding matched obligation.
XIII-114From the practice bank · 15
What is the main purpose of maintaining separate client margin records in clearing operations?
Client-level margin records support attribution and monitoring of each customer's positions and collateral. Remember: Clear margin records support client risk controls.
Hint Common mistake: Do not treat client collateral as a member's profit. Think about tracing the source and use of collateral.
XIII-115From the practice bank · 16
A futures account has ₹25,000 collateral. A ₹4,000 MTM loss is debited. What collateral balance remains before other changes?
Remaining balance = ₹25,000 − ₹4,000 = ₹21,000. Remember: Futures MTM losses reduce collateral balance.
Hint Common mistake: Collateral and MTM are separate quantities until netted. Deduct the trading loss from available collateral.
XIII-116From the practice bank · 17
What is the main principle behind scenario-based SPAN margin assessment?
Scenario-based margining estimates portfolio risk across prescribed changes in market variables. Remember: Margin reflects potential stress losses.
Hint Common mistake: A margin model is not an investment guarantee. Think about potential adverse market moves.
XIII-117From the practice bank · 18
Why are derivative contract terms sometimes adjusted after a stock split?
Corporate-action adjustments may modify and contract quantity to preserve economic equivalence. Remember: Corporate-action adjustments target economic continuity.
Hint Common mistake: Do not treat a stock split as free option profit. Think about maintaining pre-action contract economics.
XIII-118From the practice bank · 19
What distinguishes cash settlement from physical settlement of a derivative?
Cash settlement generally transfers the cash difference, while physical settlement involves delivery of the specified underlying against payment as applicable. Remember: Check a contract's settlement method before trading.
Hint Common mistake: Do not assume all derivative contracts settle identically. Focus on what is exchanged at settlement.
XIII-119From the practice bank · 20
Why do exchanges monitor unusual concentration of derivatives positions?
Position surveillance helps exchanges identify concentration, manipulation concerns and excessive exposures. Remember: Position monitoring supports orderly markets.
Hint Common mistake: Large positions are not automatically illegal or profitable. Consider the purpose of market surveillance.
XIII-120From the practice bank · 21
A long futures position covers 100 units. Daily settlements move from ₹101 to ₹95, then ₹105. What is cumulative MTM after two days?
Day 1 = (95 − 101) × 100 = −₹600. Day 2 = (105 − 95) × 100 = ₹1,000. Cumulative MTM = ₹400. Remember: Cumulative futures P&L sums signed daily MTM.
Hint Common mistake: Do not add losses and profits without their signs. Add both days' signed settlement changes.
XIII-121From the practice bank · 22
One client holds 12 long and 5 short contracts of the same fungible expiry and underlying. What is the net open position?
Net position = 12 longs − 5 shorts = 7 contracts long. Remember: Net exposure differs from gross traded positions.
Hint Common mistake: Do not add opposing positions when asked for net risk. Net contracts of the same specification.
XIII-122From the practice bank · 23
A collateral account starts with ₹20,000. It loses ₹8,000 and requires ₹15,000 to meet its stated minimum. How much additional collateral is needed?
Remaining collateral = 20,000 − 8,000 = ₹12,000. Shortfall = 15,000 − 12,000 = ₹3,000. Remember: Margin calls address a shortfall against a requirement.
Hint Common mistake: Do not equate the full trading loss with required top-up. Compare remaining collateral with the stated requirement.
XIII-123From the practice bank · 24
Assume a 2-for-1 stock split with a value-neutral option adjustment. A ₹100 strike contract covers 100 shares. What are the adjusted strike and quantity?
With this assumed adjustment, strike halves to ₹50 and contract quantity doubles to 200 shares, retaining ₹10,000 exercise consideration. Remember: Corporate-action adjustment can change both strike and quantity.
Hint Common mistake: Check adjustment methodology instead of changing only the strike. Preserve total strike exposure through the split.
XIII-124From the practice bank · 25
A market buy order fills 60 units at ₹100 and 40 units at ₹102. What is the average execution price per unit?
Total cost = 60 × 100 + 40 × 102 = ₹10,080. Average = 10,080 ÷ 100 = ₹100.80. Remember: Multi-level orders require quantity-weighted average price.
Hint Common mistake: Do not use an unweighted average when quantities differ. Weight each execution price by its filled quantity.
XIII-125Liquidity describes how easily a given quantity can be traded.
Read moreMargin is the money a participant must keep in place to carry a leveraged position.
Read moreOpen Interest (OI) is the number of futures or options contracts in the NSE F&O segment that are still open.
Read moreTraded volume is the quantity that changed hands during a set period.
Read moreExpiry day is the last day on which a derivative contract can be traded.
Read moreThe strike price is the level at which an option can be exercised.
Read more