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

A broker receives a client's request to use the 'running account settlement' facility. Which practice is consistent with SEBI's requirements on settling client funds and securities?

With a running account authorisation, the broker must still settle the client's funds and securities at the periodicity chosen by the client, subject to the maximum prescribed by SEBI. Holding balances indefinitely or using them for proprietary purposes is not permitted.

  1. AThe broker may hold client credit balances indefinitely without any settlement
  2. BThe broker must settle the client's funds and securities on the client's chosen periodicity not exceeding the prescribed maximum, based on a running account authorisationCorrect
  3. CThe broker may settle only once in two years
  4. DThe broker may transfer client balances to its own proprietary account when convenient

Explanation

Running account authorisation is allowed, but the broker must settle accounts within the maximum periodicity prescribed by SEBI, doing so after considering the client's margin obligations. Using client funds for proprietary purposes is prohibited.

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