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

A broker wishes to provide margin trading facility (MTF) to its clients. Which of the following is a requirement for funding such facility?

Under the margin trading facility, the client pays an upfront margin and the securities purchased are held as collateral by the broker, who funds the balance from own funds or permitted borrowings within net worth limits. Using other clients' securities or skipping upfront margin is not allowed.

  1. AThe broker must keep client securities bought under MTF as collateral and may fund from own funds or borrowings, subject to net worth limitsCorrect
  2. BThe broker may use other clients' fully paid securities to fund MTF without consent
  3. CThe broker can give MTF to any client without any upfront margin
  4. DThe broker must obtain funds only from the stock exchange

Explanation

MTF requires the client to pay an upfront margin, and the securities purchased are held as collateral by the broker. The broker funds the facility from its own resources or borrowings within prescribed limits. Using other clients' securities without authority, or lending with no upfront margin, is not permitted.

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