NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's client has a cash-segment exposure in a stock that is placed in the 'Z' group or a surveillance stage with a 100% margin requirement. The client wishes to buy shares worth Rs 2,00,000 and has only Rs 1,00,000 as free margin with the broker. What is the correct operational position?
The broker must not permit the full purchase. A 100% margin requirement means the whole trade value, Rs 2,00,000, must be covered upfront, and the client has only Rs 1,00,000 available. Collecting the shortfall later or expecting exchange funding is not allowed.
- AThe broker may allow the full purchase since the client's balance is sufficient for half
- BThe broker must not allow the purchase beyond the margin available, since 100% margin means the full value must be covered upfrontCorrect
- CThe broker may collect the shortfall within 30 days after the trade
- DThe exchange will fund the remaining 50% as a leveraged position
Explanation
With a 100% margin, the entire trade value must be backed by margin at the time of the trade. The client has only Rs 1,00,000 against Rs 2,00,000, so the broker cannot allow the full purchase. Delayed collection or exchange funding is not permitted.
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