NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's client has deposited Rs 2,00,000 as margin in the form of cash and pledged securities. Under SEBI's rules on collateral, which treatment of the client's pledged securities by the broker is correct?
Client securities given as margin must stay in the client's own demat account, with a margin pledge created in favour of the broker through the depository system. The broker cannot transfer them to its own account or use them for its own purposes or borrowings.
- AThe broker must pledge them through the depository system by creating a margin pledge in favour of the broker, and cannot transfer them to its own accountCorrect
- BThe broker may transfer them to its own demat account and use them for proprietary trades
- CThe broker may re-pledge them to any bank for its own borrowing without client consent
- DThe broker may sell them whenever its own funds run short
Explanation
Under SEBI's framework, client securities furnished as margin are retained in the client's own demat account with a margin pledge created in favour of the clearing member through the depository system. The broker cannot move them to its own account, use them for proprietary purposes or raise its own funds against them. The other options misuse client assets.
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