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

A broker's client has an unsettled debit balance and has not paid despite reminders. Which action is consistent with sound broking risk management practice on the client's open positions?

The broker should square off or restrict the client's positions as provided in its risk management policy and the client agreement, after due notice. Using other clients' securities or funds to cover the dues is prohibited under segregation rules.

  1. AIgnore the shortfall until the next financial year ends
  2. BSquare off or restrict positions as per the risk management policy and the client agreement after due noticeCorrect
  3. CTransfer the client's debit to another unrelated client's account
  4. DUse the securities of other clients to settle the dues of this client

Explanation

A broker may act under its risk management policy and the client agreement, for example restricting fresh positions or squaring off after notice. Using other clients' funds or securities, or shifting debits to other accounts, violates client asset segregation rules.

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