NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker receives a client's securities as margin collateral. Under current SEBI norms on use of client securities, which treatment is correct?
Client securities can be taken as margin only through the depository margin pledge and re-pledge mechanism, with the broker re-pledging only to the clearing member or clearing corporation for that client's own positions. Using them for the broker's own funding or moving them to its account is prohibited.
- AThe broker may pledge the client's securities with a bank for its own proprietary funding needs
- BThe broker may use the securities only through the margin pledge/re-pledge mechanism in the depository system, in favour of the clearing member or clearing corporation, for the client's own positionsCorrect
- CThe broker may sell the securities anytime without client instruction to recover brokerage
- DThe broker may transfer the securities to its own demat account as collateral
Explanation
Under SEBI's pledge/re-pledge framework, client securities stay in the client's demat account, and the client pledges them to the broker, who may re-pledge only to the clearing member or clearing corporation for that client's obligations. Using them for proprietary funding or transferring them to the broker's own account is prohibited.
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