Equity Derivatives book by National Institute of Securities Markets

Equity Derivatives offers a structured and comprehensive approach to understanding the concepts, mechanics, and regulatory frameworks governing equity derivatives in India. It seamlessly blends foundational knowledge of derivatives with current market practices, regulatory requirements, and practical trading insights.

This book is intended for the following audience:

• Aspiring Equity Derivatives Professionals – Individuals preparing to appear for the NISM-Series-VIII: Equity Derivatives Certification Examination or those looking to enter the field of derivatives trading
• Brokers, Dealers & Sales Personnel – Professionals working in stockbroking, proprietary trading, or sales roles who wish to stay updated on operational and regulatory aspects of equity derivatives
• Risk Managers & Analysts – Market participants who handle risk management or research functions, seeking more profound insight into trading strategies, payoff structures, and the clearing and settlement mechanism
• Students & Academics – Individuals pursuing finance or commerce programs and researchers aiming to fortify their knowledge of Indian securities markets and equity derivatives
• Investors & Market Enthusiasts – Anyone interested in understanding how equity derivatives can be employed for hedging, speculation, or arbitrage, along with a keen grasp of associated risks and regulations

The Present Publication is the March 2025 Workbook Version, developed in collaboration with the Certification Team of NISM and Dr Aparna Bhat. It is published exclusively by Taxmann, with the following noteworthy features:

• [Aligned to NISM Certification Requirements] Developed in conjunction with the Securities and Exchange Board of India (SEBI) regulations, ensuring relevance and alignment with the NISM-Series-VIII: Equity Derivatives Certification Examination
• [Comprehensive Coverage] Spans from fundamental concepts of derivatives and market architecture to sophisticated trading strategies, clearing and settlement, risk management, and the legal and regulatory environment
• [Lucid and Focused Content] Explains complex derivative terminologies concisely, supported by practical examples, illustrations, and payoff charts for both futures and options
• [Industry-endorsed and Reviewed] Jointly created by NISM's Certification Team, stock exchange representatives, and reputed market practitioners, ensuring the material is accurate and up-to-date
• [Practical Insights] Delves into hedging strategies, speculative trading, arbitrage mechanisms, margining systems (SPAN), and risk management practices, equipping readers with know-how that is immediately applicable

The coverage of the book is as follows:

• Basics of Derivatives
  • Evolution of derivatives in India
  • Types of derivative instruments (forwards, futures, options)
  • Market participants & their roles (hedgers, speculators, arbitrageurs)
• Understanding Index
  • Construction and significance of stock indices
  • Major Indian market indices and their attributes
  • Applications of indices for benchmarking and trading
• Introduction to Forwards and Futures
  • Forward vs. futures contracts
  • Futures pricing, contract specifications, and payoff structures
  • Price convergence and the role of margin in futures
• Introduction to Options
  • Call and put options: moneyness, intrinsic value, time value
  • Option Greeks (Delta, Gamma, Theta, Vega) and implied volatility
  • Practical examples of buying/selling calls and puts
• Strategies Using Equity Futures and Equity Options
  • Trading strategies for hedging, speculation, and arbitrage
  • Put-call parity and its applications
  • Delta-hedging techniques and interpreting open interest data
• Trading Mechanism
  • Eligibility criteria for stocks & indices to be traded in derivatives
  • Order types, corporate action adjustments, and trading costs
  • Algorithmic trading and investor risk reduction access (IRRA)
• Clearing, Settlement, and Risk Management
  • Role of clearing members and clearing corporations
  • SPAN margining system, mark-to-market, and position limits
  • Settlement guarantee fund, investor protection fund, and cybersecurity
• Legal and Regulatory Environment
  • Key regulations under SCRA and SEBI Act
  • Compliance guidelines for market intermediaries
  • Standard Operating Procedure (SOP) for exchange outages and defaults
• Accounting and Taxation
  • Accounting practices for derivative transactions
  • Tax treatment for profits/losses from derivative trades
  • Record-keeping and reporting obligations
• Sales Practices and Investor Protection Services
  • Risk disclosure documents & client profiling
  • Anti-money laundering procedures & KYC requirements
  • Grievance redressal mechanisms and regulatory best practices

The structure of the book is as follows:

• Introductory Chapters – Provide the basics of the Indian securities market and introduce the concept of derivatives
• Core Chapters – Cover in-depth discussions of futures, options, derivatives strategies, regulations, and risk management, ensuring robust knowledge for exam preparation and professional application
• Practical & Operational Chapters – Offer step-by-step guidance on trading processes, margining & settlement, position limits, and compliance procedures, vital for day-to-day operations in a derivatives trading environment
• Appendices & Resources – Include supplementary materials, references, and additional reading resources for comprehensive learning and exam readiness