In November 2010, NISM launched a first of its kind, mandatory certification examination titled: Securities Operations and Risk Management (SORM) Certification Examination.It covers the operational aspects of securities markets which include trading, clearing and settlement, redressal of investor grievances, risk management etc. In this Issue of NISM Update we share with you more details of this certification examination.

1. INSIDE:
India Investment
Management
NISM
Conference
Agenda
UPDATE
DECEMBER 2010
Volume 3 / Issue 5
m
ttle
e nt
Se
learin
SORM
g
C
RISK
Management
Certification for Securities
Operations and Risk Management
Clearing House and Developing a Common
Counterparty Default Risk Visual Language for
in Derivatives Market Personal Financial Education

2. Foreword
I n November 2010, NISM launched a first of its kind, mandatory certification
examination titled: Securities Operations and Risk Management (SORM)
Certification Examination. It covers the operational aspects of securities
markets which include trading, clearing and settlement, redressal of investor
grievances, risk management etc. In this Issue of NISM Update we share with
you more details of this certification examination.
Also read about:
• Clearing houses and counterparty default risk in derivatives market
• Developing a common visual language for personal financial education
Post-event round-up:
nd
• 2 Roundtable Conference on Direct Tax Code: “Implications for Securities
Markets: Investors, Issuers and Intermediaries” on Monday, December 20th
2010
Upcoming events:
• India Investment Management Conference in association with CFA Institute
and IAIP on Friday, Jan 7th 2011
• Workshop for Trustees of Mutual Funds and Independent Directors of AMC
th
on Tuesday, January 11 2011
For our first big event in 2011, the India Investment Management Conference,
we are glad to have a line-up of world class experts who will share their insight
on global investment strategy and contemporary valuation methods, followed
by domestic gurus discussing the latest trends in performance reporting and
disclosure, fixed income and alternative investments, and investment outlook
in India. We hope to meet some of our readers at the event
We trust you had a wonderful Christmas and wish you a very happy new year.
NISM UPDATE Team
NiSM
NATIONAL INSTITUTE OF SECURITIES MARKETS
NISM Bhavan, Plot No. 82, Sector - 17,
Vashi, Navi Mumbai - 400 705
Phone: +91- 022-66735100-106 | Fax: 022-66735110
www.nism.ac.in
2 NiSM December 2010

3. 2nd Round Table Conference
on Direct Tax Code
“Implications for Securities Markets:
Investors, Issuers and Intermediaries”
Monday, December 20, 2010, Mumbai
With the aim of providing a platform for various stakeholders in securities
markets to discuss various issues and concerns related to the revised Direct
Tax Code, NISM organized Direct Tax Code- Second Round Table Conference
on December 20, 2010 at Hotel Taj Land's End, Bandra (E), Mumbai.
Mr. C.K.G. Nair, Director - Capital Markets, Ministry of Finance inaugurated
the conference.
In his inaugural speech, Mr. C.K.G Nair emphasized on the importance of
Direct Tax Code in the emerging India, the aim with which it was drafted and
also the significance of feedback received from the participants. Mr. Nair
also mentioned the major areas where the bill has been revised on flexibility
of corporate tax, reintroduction of difference between long term and short
term capital gains tax, securities transaction tax and minimum alternate tax.
Leading Tax experts like Mr. Ketan Dalal, Mr. Kanu Doshi and Mr. Percy
Chhapgar addressed the above areas and their impact on securities markets.
30 representatives from various financial intermediaries participated in the
conference. The conference concluded with remarks from Mr. Nair followed
by a high tea.
December 2010 NiSM 3

4. Settlement
Clearing
SORM
RISK
Management
Securities Operations and Risk Management
Certification Examination
Mitu Bhardwaj, Programme Manager at NISM
N ISM has been established with the primary
objective of developing and implementing the
Certification Framework for the Indian securities
Industry such as Currency Derivatives, Interest Rate
Derivatives, Mutual Fund Advisors, Registrars and
Transfer Agents to name a few.
markets. This includes establishing knowledge
benchmarks for various market functions, Securities Operations and Risk Management
developing and implementing certification (SORM) Certification Examination
examinations and continuing professional education
programs. The Securities Operations and Risk Management
Certification Examination aims at building a cadre of
In order to bring in uniformity and a level playing professionals who would be skilled in understanding
field for all the professionals working in the the operational aspects of the securities industry.
securities industry, NISM has developed certification This examination is a first of its kind in India.
examinations focused on the different areas of this
4 NiSM December 2010

5. The SORM examination will be helpful for graduates or post graduates in
commerce, economics, and management or in any other discipline who are
aspiring to be a part of the securities industry and are keen on learning about
the operational aspects of trading, clearing and settlement of trades,
procedures to redress investor grievances, risk management etc.
The Securities and Operations Risk Management certification discusses the
various products and participants in the securities market and the trade life
cycle in its entirety including clearing and settlement of trades. The
functioning of the front office, middle office and back office in a broking firm
has also been discussed in detail. It also focuses on the various risk
management requirements and practices; the procedures followed for
redressing investor grievances; and arbitration mechanism followed in the
securities industry. The securities broking industry also provides other
financial services to customers, such as depository services, portfolio
management etc. As a part of this certification, candidates are also required
to have knowledge of these other services provided by the broking
fraternity.
Benefits:
The certification in Securities Operations and Risk Management will prepare
the candidates to:
Learn about the Indian securities market; the products being traded, the
different players in the market.
Understand the regulatory framework in which the securities market
functions.
Better understand the activities having a bearing on the operational risk.
Understand the procedural aspects for redressing investor grievances.
Who should take the examination?
SEBI has mandated the NISM Series VII Certification Examination for the
following category of associated persons i.e., persons associated with a
registered Stock Broker /Trading Member / Clearing Member in recognized
stock exchanges, who are involved in, or deal with, any of the following,
namely:
Assets or funds of investors or clients
Redressal of investor grievances
Internal control or risk management, and
Activities having a bearing on operational risk.
This examination will also help Graduates/Post Graduates looking for a
career in the securities industry.
How do you register for the examination?
A candidate interested in taking the NISM Securities Operations and Risk
Management examination may do so by registering themselves through the
three different test administrators appointed by NISM viz. NSE, BSE and
MCX-SX.
To find out more please visit our website www.nism.ac.in
December 2010 NiSM 5

6. Clearing House and Counterparty
Default Risk in Derivatives Market
Dr. Poonam Mehra, Assistant Professor at NISM
T he process of “clearing” involves post-trade
operations that include trade matching,
confirmation and clearances, and risk-management
Derivatives contracts are agreements to make
Payments or buy/sell something at some time in the
future period, where the period could range from a
activities such as, netting, collateralization and few days to many years based on the value of the
procedures that mitigate or eliminate some forms of underlying asset or index in case of futures/forwards
credit risk. Although the risk management activities and, in the case of options, the decision of one of the
of the clearing process are essential to both the stock counterparties. Typically, one of the primary risks
and derivative markets, this article focuses on the associated with a derivative contract is the
derivative market which has come to the forefront of counterparty risk, i.e. the risk of one counterparty
policy debate particularly in the aftermath of the failing to honor its obligation and hence defaulting. If
financial crisis of 2007-2008. this risk is allowed to persist, it can lead to loss of
confidence in the system and eventually the system
can dwindle.
6 NiSM December 2010

7. Eliminating this uncertainty is the function of a clearing house which comes
into play during the trade clearance stage of the clearing process. At this
point the clearing house becomes an official “party to every trade,”
substituting itself as a seller to every buyer and a buyer to every seller. In
interposing itself this way, the clearing house legally assumes the obligation
of guaranteeing the execution of each trade to other clearing members,
should one of the clearing members default or fail. There are also two
financial aspects to this risk management function of the clearing house.
First of all, the clearing house attempts to reduce the risk that a clearing
member will not be able to honor its commitments by setting capital
requirements, position limits, and other financial standards for members,
collecting margin payments on open positions and continuously monitoring
the financial strength and portfolio positions taken by member firms.
Second, the clearing house makes provisions for fulfilling its guarantee by
envisaging a guarantee fund and sometimes by establishing rules permitting
it to make an ex-post assessment of its solvent members to cover any
defaults.
Normally the default risks insured by the clearing house, as discussed above,
are idiosyncratic affecting relatively small subsets of traders. For mitigating
such idiosyncratic risks, the effectiveness of clearing house is well
established. However this risk could be systemic i.e. the risk could be that
derivatives contracts can lead to failure of major financial institutions as
seen during the financial crisis of 2007-08. While one school of thought
argues that the systemic risks could be mitigated by provisioning mandatory
clearing of all derivative contracts through the clearing house, there is
another school of thought which is skeptical about the effectiveness of the
clearing house against systemic risk. This latter school argues that the ability
of the clearing house in handling systemic risk is adversely affected by
information related problems, particularly moral hazards and adverse
selection. Whether the clearing house with its current mechanisms would
be able to match up against systemic risk or it would need to equip itself
better in handling the information problems is going to be a top agenda in
the policy debate as the world gears itself up against potential financial
turmoil!
December 2010 NiSM 7

8. Developing a Common Visual Language
for Personal Financial Education
Deven Shah, Consultant at NISM
I n the process of creating content for various
investor education and financial literacy
initiatives, we talk to many individual investors and
On our investor education website
www.InvestorFirst.in we have experimented with a
visual style for explaining a few financial concepts
the two points that are almost always part of the and have received a highly positive feedback.
discussion are:
We did some further research on this subject and
1. Lot of confusion prevailing today because of came across The Visualizing Finance Lab (VFL) - a
information overload and different working group of researchers, artists, and educators
people/entities presenting content that’s often affiliated with Parsons the New School for Design
inconsistent or contradictory. and the The New School who are interested in the
2. Very few people have the time, inclination and intersection of finance, education and design. The
ability to read large volume of text matter to learn VFL explores the ways in which complex financial
about personal finance and investing. situations and dynamics can be explained through
visual, metaphorical and narrative representations.
These insights tell us that we need a neutral and The lab's initial goal is to develop a vocabulary for
trusted body to bring in some amount of describing illustrations and other visualizations of
standardization in the base content for personal the recent financial crisis, and creating a searchable
financial education and make it available to public at online database for the use of educators, scholars,
large. There is also a need to introduce innovative and professionals. These tools will assist designers
visual formats for customizing the content based on and creative professionals to contribute more
the target audience and delivery mediums. confidently to the discourses of business and
economics, and establish a common language for
Creation of a common visual language for personal artists, editors, and educators in building financial
financial education can be a good solution. This literacy and understanding. We have started a dialog
would involve bringing together professionals from with The VFL to learn from their experience.
various domains including educators, instructional
designers, graphic artists, copywriters, journalists, We intend to further examine the need, viability and
and financial practitioners etc. to create a common implementation methodology for creating a
base language for financial education which can then common visual language for personal financial
be used by as many people/entities as feasible. This education in India. What are your thoughts? Would
would reduce duplication of effort in creating you like to participate? Do write to us with feedback
content and tackle the problem of inconsistency. and comments on deven.shah@nism.ac.in
InvestorFirst.in is NISM’s initiative
to empower investors with
knowledge and tools to manage
their investments wisely.
8 NiSM December 2010

9. Here are some samples:
Entry Load's removal in Mutual Funds and its Why should an individual consider investing in
implication on investors and advisors: equities markets:
December 2010 NiSM 9

10. India Investment Management Conference
What's Next after the Recovery?
DATE FEES
7 January 2011 CFA Institute Members, IAIP Members,
7
NISM Graduates (CFERM/CSMP
VENUE Grand Hyatt Mumbai Program) Rate: INR 8,400
Mumbai, India
CFA Institute Candidates /
Registration: apevents@cfainstitute.org NISM Students Rate: INR 9,450
+91 22 66735100-06 Non-member Rate: INR 10,500
Agenda – 7th January 2011
8.30 a.m. Registration 10.40 a.m. Plenary Session II
Valuation Inferno: Dante Meets DCF - Avoiding Common
9.00 a.m. Conference Welcome Mistakes in Valuation Analysis (Part 1)
Mr. John Rogers, CFA, President and CEO, Prof. Aswath Damodaran, Professor of Finance,
CFA Institute Leonard N. Stern School of Business,New York University
Opening Remarks 11.40 a.m. Refreshment Break
Mr. Sunil B. Singhania, CFA, President, IAIP
12.00 p.m. Plenary Session II (Continued)
Keynote Speech Valuation Inferno: Dante Meets DCF - Avoiding Common
Mr. C. B. Bhave, Chairman,SEBI Mistakes in Valuation Analysis (Part 2)
Prof. Aswath Damodaran, Professor of Finance
9.40 a.m. Plenary Session I Leonard N. Stern School of Business, New York University
Global Investment Strategy & Outlook
Ms. Abby Joseph Cohen, CFA, Senior Investment Q&A Session
Strategist and President Global Markets Institute, Moderated by Dr. K. M. Abraham, CFA
Goldman Sachs Whole Time Member, SEBI
Q&A Session: Moderated by Mr. Uday Kotak 1.00 p.m. Lunch
Executive VC & MD, Kotak Mahindra Bank
10 NiSM December 2010

11. Break-Out Sessions (Two tracks)
1st Concurrent sessions 2nd Concurrent sessions
“Reporting and Disclosure” “Fixed Income & Alternative Assets”
2.00 p.m. 2.00 p.m.
Performance Measurement and Reporting Fixed Income
Panel Moderator: Panel Moderator:
Mr. Trevor Persaud Mr. Jayesh Mehta
Director, Head of Investment Risk Oversight Managing Director and Treasurer,
and Performance Analysis, Prudential Asset Bank ofAmerica
Management (Singapore) Ltd
 Panelists:
 Panelists:  Mr. Anjan Barua
 Aditya Agarwal
Mr.  Deputy Managing Director & Group Executive
 Managing Director, Morningstar India  (Global Markets), State Bank of India
 Fannie Fang, CFA, CIPM
Ms.  Dr. H. K. Pradhan
 Director, Global Investment Performance  Professor of Finance & Economics,
 standards, CFA Institute
 Ashu Suyash
Ms. XLRI Jamshedpur
 Managing Director and Country Head, FIL  Mr. Nilesh Shah
 Fund Management  Deputy Managing Director, ICICI Prudential
 K. N. Vaidyanathan
Mr. Asset Management Company Limited
 Executive Director, SEBI  Mr. Naresh Takkar
 Managing Director, ICRA Ltd.

3.00 p.m. 3.00 p.m.
IFRS update Private Equity, Venture Capital & Real Estate
Panel Moderator: Panel Moderator:
Mr. Suresh Mahadevan Mr. Vikram Utamsingh
Managing Director, UBS Investments, Mumbai Head, Markets and Private Equity Advisory,
KPMG
 Panelists:
 K Balachandran
Mr.  Panelists:
 Co-Founder and Director, IRIS Business  Rajeev Gupta
Mr.
 Services Limited  MD, Carlyle India Advisors Private Limited
 Jamil Khatri
Mr.  Satish Mandhana
Mr.
 Executive Director, Accounting Advisory  Managing Director, IDFC Private Equity
 Services, KPMG  S. Sriniwasan
Mr.
 Makarand Paladkar
Mr. 
4.00 p.m. Refreshment Break 5.45 p.m.
4.45 p.m. Closing Remarks
Power Panel – India Investment Outlook Prof. G. Sethu
Panel Moderator: OSD In-charge, NISM
Dr. Venkatraman Anantha-Nageswaran
Chief Investment Officer, Bank Julius Baer Vote of Thanks
Mr. Vidhu Shekhar, CFA
 Panelists: Vice President, IAIP
 Vallabh Bhansali
Mr.
 Chairman, ENAM Securities Ltd. End of Conference
 Madhusudan Kela
Mr.
Chief Investment Strategist, Reliance Capital
 Akash Prakash
Mr.
 Director & CEO, Amansa Capital Pte. Ltd.
December 2010 NiSM 11

12. Workshop for Trustees of
Mutual Funds and
Independent Directors of Asset
Management Companies
Tuesday, January 11, 2011, Mumbai
T he next in the series of workshops that NISM conducts for Trustees and
Independent Directors is scheduled on January 11, 2011. The two key
sessions that will be covered in this workshop are:
1.Risks and Rewards in Derivatives
Dr. Sayee Srinivasan, Head - Product Strategy, Bombay Stock Exchange
2.Operational Risk and Fund Financial Statements
Shri Sanjay Panse, Partner, S. Panse & Company
Senior professionals from SEBI and NISM will also be present at the event to
interact with the participants.
We will also be launching an online discussion forum for Trustees and
Independent Directors. This will make sharing of views, documents, easier
and faster. On this forum we will also upload presentations and videos of
past workshops for reference.
A sample screen of the online forum.
12 NiSM December 2010