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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

A broker provides Margin Trading Facility to a client under exchange rules. Which statement about the shares bought under this facility is correct?

Shares bought under Margin Trading Facility must be held as collateral in a separate client-wise designated account, kept apart from the broker's own holdings and other clients' securities, so that client assets are protected and properly recorded.

  1. AThey can be kept by the broker in its own demat account as proprietary stock
  2. BThey must be held in a separate client-wise collateral account, not mixed with the broker's own holdingsCorrect
  3. CThey are freely transferable to any other client of the broker
  4. DThey need not be recorded in client-level records

Explanation

Securities bought under MTF are collateral and must be kept in a designated client-wise MTF collateral account, kept separate from the broker's own and other clients' securities. Using them as proprietary stock or for other clients would be misuse of client assets.

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