NISM Series I · Unit 10 of 10 · about 5% of the paper
Codes of conduct and investor protection: NISM Series I notes and practice questions
Ethical duties of intermediaries and the safeguards for investors.
What to know in Unit 10
- Code of conduct.
- Investor protection.
Key terms, examples and exam traps
Code of conduct
Intermediaries must act with integrity, diligence and fairness and avoid manipulative practices.
Example. A broker refuses to execute a manipulative trade.
Exam trap. This statement is false: The code allows guaranteeing returns.
Risk disclosure
Brokers must inform clients of the risks, including leverage and potential losses beyond margin.
Example. A client signs the risk disclosure form.
Exam trap. This statement is false: Disclosure is needed only for large clients.
Suitability and mis-selling
Products should match the client's needs and understanding, and mis-selling is a violation.
Example. A dealer explains the risk of a short option.
Exam trap. This statement is false: A dealer may push complex products to all clients.
Front running
Trading ahead of a client's order for personal gain is prohibited.
Example. A dealer trades before executing a client order.
Exam trap. This statement is false: Front running is acceptable on small orders.
Investor Protection Fund
The exchange maintains a fund to compensate investors in case of a broker default up to specified limits.
Example. A client of a defaulting broker may claim compensation.
Exam trap. This statement is false: The fund covers market losses.
Confidentiality
Client data must be kept confidential and disclosed only as required by law.
Example. A dealer does not share client positions.
Exam trap. This statement is false: Client positions may be shared with other clients.
Complaint resolution
Complaints should be acknowledged and resolved within prescribed timelines.
Example. A firm responds to a complaint in time.
Exam trap. This statement is false: Complaints may be ignored.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? Products should match the client's needs and understanding, and mis-selling is a violation.
- Suitability and mis-selling
- Direct and indirect quote
- Volatility and premium
- Base and quote currency
Q2. Which statement best describes “Front running”?
- Rates move with interest rate differentials, inflation, trade and capital flows, growth and sentiment.
- Currency derivatives trade on weekdays from 9:00 am to 5:00 pm, subject to exchange schedule.
- Trading ahead of a client's order for personal gain is prohibited.
- Participants include banks, corporates, exporters, importers, investors, speculators and central banks.
Q3. Which term is described here? Complaints should be acknowledged and resolved within prescribed timelines.
- Initial margin
- Record maintenance
- Underlying exposure
- Complaint resolution
Q4. Which term is described here? Intermediaries must act with integrity, diligence and fairness and avoid manipulative practices.
- Open interest
- Code of conduct
- Long and short futures
- Option buyer and writer
Q5. Which term is described here? Client data must be kept confidential and disclosed only as required by law.
- Investor Protection Fund
- Balance of payments
- Short call risk
- Confidentiality
Q6. Which statement best describes “Complaint resolution”?
- Limits for individual clients are set at a set dollar amount of gross open position per currency pair.
- A bull call spread buys a lower strike call and sells a higher strike call, limiting both cost and profit.
- A put gives the right to sell the underlying at the strike price.
- Complaints should be acknowledged and resolved within prescribed timelines.
Frequently asked questions
How much of NISM Series I comes from Unit 10?
Unit 10 (Codes of conduct and investor protection) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series I Unit 10?
Code of conduct. Investor protection.
Are these NISM Series I practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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