NISM Series VIII: Equity Derivatives | Chapter 10: Sales Practices & Investor Protection | Full Notes

CHAPTER 10: SALES PRACTICES AND INVESTOR PROTECTION MEASURES

10.1 INTRODUCTION

The finance sector ensures stable markets and supports the real economy. Product sales must be led by customer needs and accompanied by efficient advice.

Investor Caution List

  • Investor Seminars: Avoid unsuitable products pitched at seminars; seek third-party advice.

  • Churning: Watch for excessive trading intended only to generate commissions.

  • Unsuitable Recommendations: Be cautious of products that don't match your investment objective or risk profile.

Sales Agent Code of Conduct

  • Call only between 9 am and 8 pm.

  • Identify themselves and their purpose promptly.

  • End discussions immediately if requested by the customer.

  • Professionalism: Avoid high-pressure tactics and false assumptions.

10.2 RISK DISCLOSURE DOCUMENT (RDD)

The RDD outlines the risks involved in trading and the rights/obligations of brokers and clients.

Specific Risks in Derivatives

  1. Market Risk: Unfavorable market movements causing losses.

  2. Liquidity Risk: Difficulty in exiting positions, especially near expiry.

  3. Daily Settlement: Futures are marked-to-market daily; unfavorable moves require additional deposits.

  4. Option Sellers: Face unlimited risk if the underlying asset price moves unfavorably.

  5. Premium Loss: Options are "wasting assets" that can become worthless at expiry.

Mandatory Risk Disclosures (SEBI 2023 Study)

Brokers must display these facts as pop-ups upon client login:

  • 9 out of 10 individual traders in the F&O segment incurred net losses.

  • On average, loss makers registered net trading losses close to ₹50,000.

  • Loss makers spent an additional 28% of their trading losses as transaction costs.

10.3 ANTI-MONEY LAUNDERING (AML) PROCEDURES

Governed by the Prevention of Money Laundering Act (PMLA), 2002.

Client Due Diligence (CDD)

  • Client Acceptance Policy: No anonymous or fictitious accounts; risk-based classification (Low, Medium, High).

  • Clients of Special Category (CSC): Non-residents, HNIs, Trusts, Charities, NGOs, and Politically Exposed Persons (PEPs).

  • In-Person Verification (IPV): Mandatory for opening trading or demat accounts (physical or webcam/video call).

  • Unique Client Code (UCC): Post-KYC, clients are assigned a UCC linked to their PAN.

Suspicious Transaction Reporting (STR)

Intermediaries must report suspicious transactions to the Financial Intelligence Unit - India (FIU-IND).

  • Examples: Difficulty verifying identity, unclear source of funds, or large money transfers overseas with cash instructions.

  • Note: The client should NOT be informed about the suspicion or the report.

10.4 INVESTOR GRIEVANCE MECHANISM

Redressal Process

  1. Receipt: Investors submit complaints via prescribed forms with supporting documents to the exchange.

  2. Redressal: Exchange facilitates communication between the member and the complainant.

  3. Arbitration: A quasi-judicial process for disputes. Decision made within 4 months of the first hearing is binding. Appeals to an Appellate Bench can be made within 30 days.

SEBI Complaints Redress System (SCORES)

A web-based system (http://scores.gov.in) for managing and tracking investor grievances.

  • Follow-Up: Companies must resolve complaints within 30 days.

  • Escalation: Dissatisfied investors can provide reasons within 15 days for further SEBI review.

10.5 DO’S AND DON’TS FOR INVESTORS

Do’sDon’ts
Deal only with SEBI-registered intermediaries.Avoid unregistered brokers.
Settle dues through formal banking channels.Avoid making payments in cash.
Insist on contract notes and verify transactions.Do not trade based on rumors or tips.
Perform due diligence before registering.Avoid promises of high/guaranteed returns.

Dhaval Visariya

AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast

Connect with me:
LinkedIn | Telegram | YouTube | GitHub | Medium

Disclaimer: I am an AMFI Registered Mutual Fund Distributor. Views expressed here are for educational purposes. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
📧 Contact: info.apollofinancialservices@gmail.com

Comments

Post a Comment

Popular posts from this blog

Nifty 30,000: The JP Morgan Blueprint for the Indo-US "Trade Bull Run" 🚀🇮🇳🇺🇸

The world’s largest democracies have just "re-indexed" their relationship, and the "Engineering Logic" is clear: India is the primary beneficiary of a massive global trade shift. JP Morgan has reiterated its Nifty target of 30,000 by end-2026 , signaling that the "Hanging Sword" of trade uncertainty has been replaced by a "Booster Shot" for earnings. Key Takeaways The 30,000 Target: JP Morgan projects a 15% upside for Nifty 50, driven by supportive policies and the landmark trade deal. Tariff Relief: Reciprocal tariffs have been slashed to 18% from 25% (and up to 50% on some goods), significantly boosting export competitiveness. Sectoral Explosions: Nifty IT and Auto indices surged over 5-6% immediately following the announcement. FII Homecoming: Analysts expect the deal to reverse record foreign outflows and strengthen the Rupee toward the 90.30 level. Auto Market Opening: The deal addresses Washington’s demand to lower high Indian tar...
Read more

NISM Series XV Research Analyst: Complete Study Material & Notes by Dhaval Visariya

Image
NISM Series XV Research Analyst: The Ultimate Study Vault (2026 Updated) Hi, I'm Dhaval Visariya . I recently cleared the NISM Series XV Research Analyst examination. To help fellow aspirants navigate the new 2026 syllabus changes—including the new Case Study requirements and Technical Analysis chapter—I am sharing my entire preparation kit. Below you will find my handwritten notes , chapter-wise digital summaries , 600+ MCQs , and solved case studies . My Passing Proof:Dhaval Visariya NISM 15 XV Research Analyst Certificate Updated Exam Structure & Weightage (2026) The exam has shifted towards a more practical approach. Here is the latest weightage for the 100-mark paper: Note: The exam now includes 5 Case Studies (20 marks total). Do not skip the practical examples in Chapters 8 and 10! 1. Chapter-Wise Short Notes I have summarized all 15 chapters into high-yield "cheat sheets" for last-minute revision. 2. 600+ Most Important MCQs I have compiled these questions ...
Read more

NISM 15 Research Analyst Mock Test 1: 600 MCQ Series (2026 Updated)

NISM Series XV: Mock Test 1 (Set 1 of 24) Dhaval’s Personal Advice for Aspirants: Practice and understand these 25 questions. If you can't understand the theory or the logic, just mug it up (memorize it) because these are very important and sure-shot questions that will appear in the exam! Q 1. As per the SEBI (Research analyst) Regulations, who is qualified to be registered as a research analyst? Options: A. Only Graduates B. Only Post-Graduates C. Only Chartered Accountants D. All of the above are qualified View Correct Answer & Detailed Explanation Correct Answer: All of the above are qualified Explanation: As per the SEBI (Research Analysts) Regulations, 2014, amended up to 2024, all of the above are eligible to be registered as a research analyst. Prior to the amendment in 2024, graduates were not eligible for this. Q 2. Efficient Market Hypothesis proclaims...
Read more