NISM Series VII (SORM) cheat sheet
NISM Series VII (SORM) · Keep the key ideas within reach.
Securities Operations and Risk Management
Settlement cycle for Indian equities: T+1 (trade date plus one business day); pay-in of funds/securities precedes pay-out on the same settlement day.
Clearing corporation novates trades: it becomes buyer to every seller and seller to every buyer, replacing counterparty credit risk with clearing-house risk.
Risk-management waterfall at a clearing corporation: member margin (initial + mark-to-market), then settlement guarantee fund (SGF), then CCP capital contribution.
Initial margin for equities is VaR-based (99% confidence, one-day horizon per SEBI norms), with a minimum floor; mark-to-market losses are collected as additional margin.
Exposure/peak margin: SEBI peak margin rules require brokers to collect full upfront margin from clients before executing trades; shortfall attracts penalty (e.g., 0.5% of shortfall per day, capped by applicable circular).
Delivery versus payment (DvP) mode 1: securities and funds legs settle simultaneously on a gross basis; India uses DvP mode 1 for equities.
T+1 settlement involves T+1 pay-in by ~11:00 and pay-out by ~13:30 (timings per exchange circular); auction/short-delivery handling occurs on the following day.
Corporate action adjustments: for bonus/split, clearing corporation adjusts open positions and margin obligations to the post-action price; ex-date and record date determine entitlement.
Securities Operations and Risk Management (continued)
Risk categories for a broker: market risk (price/volatility), credit risk (client default), operational risk (process/system failure), liquidity risk (funding shortfalls), and legal/regulatory risk.
Value at Risk (VaR): parametric VaR = portfolio value × z × σ × √holding period; z ≈ 2.33 for 99% one-tailed confidence.
Circuit breakers on Indian exchanges: index-based (10%, 15%, 20% movement) and stock-level price bands (2%, 5%, 10%, 20% depending on liquidity/volatility).
Client funds must be segregated from broker funds; unpaid client securities must be returned within one working day of pay-out per SEBI norms.
Settlement guarantee fund (SGF) is built from member contributions and covers defaulting member shortfalls after margin exhaustion; a separate core SGF is maintained per SEBI.
Short delivery: buyer does not receive securities on pay-out; clearing corporation conducts an auction on T+2 (or T+1 auction per current framework) and compensates the buyer at auction price or close-out price.
Operational risk controls: maker-checker on settlements, reconciliation of nostro/depository accounts daily, and business continuity planning with tested recovery objectives.
KYC/AML: PAN is mandatory for all exchange trades; periodic re-KYC and suspicious transaction reporting to FIU-IND apply to intermediaries.