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

A broker's client defaults and the broker wants to recover dues. Which of the following is the correct position regarding client money held by the broker?

Client money must be held in a separate designated client bank account, distinct from the broker's own funds. Mixing it with proprietary funds is prohibited regardless of client tenure or interest paid, because segregation protects client assets if the broker defaults.

  1. AClient funds may be mixed with the broker's own funds in a single bank account
  2. BClient funds must be kept in a separate client bank account, distinct from the broker's own accountCorrect
  3. CClient funds may be deposited in the broker's proprietary account if interest is paid
  4. DClient funds need not be segregated if the client is a long-standing one

Explanation

SEBI and exchange norms require segregation of client funds in designated client bank accounts, separate from the broker's own funds. Mixing or using them for proprietary purposes is a violation, irrespective of client tenure or interest payments.

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