Securities Operations and Risk Management

Syllabus and chapter weightage

Weightages are taken from the official syllabus table published in the NISM workbook, so you can see exactly where the marks are.

Every chapter can be read free, no account needed — tap a chapter to open its plain-English Foundation lesson.

Sample questions

5 questions from the chapter tests, one per chapter. Pick your answer before you open the explanation.

1. Question 1 · Chapter 1: Introduction to Securities Market

   Notice money refers to uncollateralized interbank lending and borrowing for a period of:

   1. A.Overnight only
   2. B.Beyond overnight and up to 14 days
   3. C.Between 15 days and 1 year
   4. D.Between 1 year and 3 years
   Show the answer

   Answer: B. Beyond overnight and up to 14 days

   Notice Money: This is an extension of the interbank call market with uncollateralized lending and borrowing of funds for a period beyond overnight and up to 14 days.

   The three tenor bands sit next to each other and are all tested:

   Call Money is predominantly overnight, and is an avenue for unsecured lending and borrowing of funds in a purely interbank market in India restricted only to Scheduled Commercial Banks (SCBs) and the Primary Dealers (PDs).

   Term Money is an extension of the interbank call market for uncollateralized lending and borrowing of funds for a period between 15 days and 1 year.

   All three are dealt or reported on the RBI's NDS-CALL (Negotiated Dealing System – Call) platform, which is managed by CCIL.

2. Question 2 · Chapter 2: Market Participants in the Securities Market

   The process by which the clearing corporation acts as central counterparty and provides a financial guarantee for all transactions executed on the exchange is called:

   1. A.Indemnification
   2. B.Novation
   3. C.Netting
   4. D.Reconciliation
   Show the answer

   Answer: B. Novation

   The Clearing Corporation acts as a central counterparty i.e., it provides financial guarantee for all transactions executed on the Exchange. This process is called novation.

   It is what allows anonymous trading to work at all — buyers and sellers who have never met can transact because each is dealing with the clearing corporation rather than with each other.

   A Clearing Corporation performs three main functions, namely: clearing and settlement of all transactions executed in the stock market (i.e., completes the process of receiving and delivering shares/funds to the buyers and sellers in the market) and carrying out risk management.

   The two phases of settlement are named separately: Pay-In is a process whereby a Clearing Member and Custodian (in case of Institutional deals) bring in money and/or securities to the Clearing House/Corporation. This forms the first phase of the settlement activity. Pay-Out is a process where the Clearing House/Corporation pays money or delivers securities to the Clearing Member and Custodians. This is the second phase.

3. Question 3 · Chapter 3: Introduction to Securities Broking Operations

   In a stock broking firm, risk management is which office's function?

   1. A.Front office
   2. B.Middle office
   3. C.Back office
   4. D.It is performed only by the clearing corporation
   Show the answer

   Answer: B. Middle office

   The workbook maps the trade life cycle onto the three offices explicitly. Placing an order, routing it through the trading platform, and matching it into a trade are front office functions. Risk management is the middle office function. Confirmation of trades and clearing and settlement are the back office functions.

   Option A is wrong because the front office generates and executes orders — dealers and sales staff. Option C is wrong because the back office handles post-market processing: confirmation, payments, settlement and accounting. Option D is wrong because the broker runs its own online risk management system; the clearing corporation levies margins on the broker, but the broker must collect from clients and check orders before they reach the exchange.

4. Question 4 · Chapter 4: Risk Management

   The Value at Risk (VaR) margin in the cash segment is intended to cover the largest loss that can be encountered on what proportion of days?

   1. A.95% of the days
   2. B.99% of the days
   3. C.99.9% of the days
   4. D.100% of the days
   Show the answer

   Answer: C. 99.9% of the days

   The workbook states it directly: the VaR Margin is intended to cover the largest loss that can be encountered on 99.9% of the days (99.9% Value at Risk).

   Option B is the trap, and a well-placed one — 99% VaR is the confidence level used for initial margin in the DERIVATIVES segment, over a horizon set by the Margin Period of Risk. Two different segments, two different confidence levels.

   Option D is impossible by construction. No margin covers every conceivable loss, which is exactly why the Extreme Loss Margin exists — to cover the situations that lie outside the computation of the VaR margin.

5. Question 5 · Chapter 5: Clearing Process

   Under the SECC Regulations, 2018, "novation" means:

   1. A.The netting of obligations across all clearing members
   2. B.The act of a clearing corporation interposing itself between both parties of every trade, being the legal counterparty to both
   3. C.The transfer of securities from a pool account to a beneficiary account
   4. D.The process of confirming custodial participant trades
   Show the answer

   Answer: B. The act of a clearing corporation interposing itself between both parties of every trade, being the legal counterparty to both

   "Novation" means the act of a clearing corporation interposing itself between both parties of every trade, being the legal counterparty to both.

   In practice: it acts as a legal counterparty to all trades through the process called novation. Thus Clearing Corporation becomes the buyer to every seller and seller to every buyer. If there is a default in this scenario, Clearing Corporation being counter party, is responsible for ensuring the settlement, thus managing risk and guaranteeing settlement to both the parties.

   Why it is necessary: in a multi-lateral netting scenario, when a default occurs, it is difficult to unwind the trade to find the original counter party who will have to bear the loss. The process of "novation" addresses this risk.

   And the guarantee is backed by collateral, not merely by promise: to provide such a guarantee, robust risk management practices are put in place including efficient margining system so that in the event of default, Clearing Corporation has sufficient funds from the defaulter to cover the loss.

Frequently asked questions

What is the passing mark for NISM Series VII?

You need 50% to pass NISM-Series-VII: Securities Operations and Risk Management. On a 100-mark paper that is 50 marks.

Is there negative marking in NISM Series VII?

There is negative marking of 25% of the marks for that question, so a wrong answer costs you 0.25 marks on a 1-mark question. Guess only when you can eliminate at least two options.

How long is the NISM Series VII exam?

The exam runs for 120 minutes and carries 100 marks in total.

How long is the NISM Series VII certificate valid?

NISM certifications are generally valid for 3 years from the date of passing, after which they must be renewed. Confirm the current position on nism.ac.in before your certificate lapses.