Legal risk
The possibility that a contract cannot be enforced against the other party — because the contract may be illegal, or because the counterparty entered it without proper authority.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Algorithmic tradingAny order generated by automated execution logic rather than typed in by a person — software that pushes buy and sell orders into the exchange once its parameters are met.
- Authorised personTwo different entities share this name: under SEBI, an agent appointed by a stock broker to give clients access to the trading platform; under FEMA, a dealer authorised by RBI to deal in foreign exchange.
- Fit and proper personThe character and record test in Schedule II of the SEBI (Intermediaries) Regulations, 2008 that an AIF's applicant, sponsor and manager must satisfy for registration and must keep satisfying afterwards.
- Kill switchA pre-trade facility that lets a trading member cancel every one of its outstanding orders with a single command — the emergency brake for a malfunctioning terminal or algorithm.
- Price bandThe highest and lowest price at which a contract may trade on a given day, set as a percentage of its base price to block erroneous and manipulative orders.
- Systemic riskThe risk that one participant's default triggers defaults by others until the settlement system itself fails — the domino risk, not the market risk.
Where this is taught
Free preparation for NISM Series IV← All terms