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

A broker holds a client's Rs 10,00,000 of securities as margin collateral. Under SEBI's rules on client securities, which action by the broker is permitted?

The broker may only accept the client's securities as margin through the depository's margin pledge process, and re-pledge them to the clearing corporation with the client's authorisation. Transferring them to the broker's own account, using them for proprietary trades, or pledging them for the broker's own loans is prohibited.

  1. APledging the securities with the clearing corporation by creating a margin pledge via the depository's mechanism, with the client's consentCorrect
  2. BTransferring the securities to the broker's own demat account to use them for proprietary trades
  3. CPledging the securities to a bank to raise a loan for the broker's business
  4. DLending the securities to another client for a fee

Explanation

Under SEBI's pledge and re-pledge framework, client securities can be given as margin only through a margin pledge (and re-pledge to the clearing corporation) in the depository system, with client authorisation. Moving securities into the broker's own account or using them for the broker's own borrowing or lending is prohibited.

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