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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to Securities Broking Operations

A broker has received a client's securities for a sale. Which statement correctly describes how the broker must handle client funds and securities as per SEBI norms?

Client funds and securities must be kept segregated from the broker's own, and securities can be pledged only under the specific client authorisation for that client's own obligations. Using client assets for proprietary trades, the broker's borrowing or other clients' margin is not permitted.

  1. AClient securities may be pledged by the broker with any lender for the broker's own borrowing
  2. BClient funds may be used for the broker's proprietary trades if the client is not trading that day
  3. CClient securities and funds must be kept separate from the broker's own, and securities may be pledged only with a client's specific authorisation for that client's obligationsCorrect
  4. DClient securities may be used for other clients' margin without any client authorisation

Explanation

SEBI requires segregation of client assets from the broker's own. Funds and securities of clients cannot be used for proprietary or other clients' purposes, and pledge is allowed only through the proper client-authorised mechanism. The other options describe misuse of client assets.

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