NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's client holds a position in a stock that has just been moved to a stricter price band and a higher margin rate by the exchange. Which is the most appropriate operational response by the broker's risk management team?
The broker should apply the revised, higher exchange margin rate to the client's exposure and call for the additional margin. Retaining the old rate or reducing margins despite higher volatility would understate risk and break exchange requirements.
- AKeep the old margin rate for the client until the position is closed
- BApply the revised margin rate to the exposure and call for the additional margin from the clientCorrect
- CReduce the margin because volatility has risen
- DWait for the client to request a margin recalculation
Explanation
When the exchange raises margins on a security, members must apply the revised rate, so the broker recalculates exposure and calls for the extra margin. Keeping the old rate understates risk, and lowering margins on a more volatile stock is the opposite of prudent practice.
Did you get it right without looking?
One question tells you little. A timed set on Risk Management shows your real accuracy, how long you take and where you lose marks.
More Risk Management questions
- A broker's client buys 1,000 shares on Monday under the T+1 rolling settlement and does not pay the funds due. Which action is most consiste…
- In the context of a stock broker's risk management, what is the main purpose of a 'Value at Risk (VaR) margin' collected on cash market posi…
- In the context of a stock broker's risk management, what is the main purpose of a 'Value at Risk (VaR) margin' collected from clients?
- Which of the following best describes the role of the Value at Risk (VaR) margin collected by the exchange or clearing corporation?
- A client buys 1,000 shares at Rs 500 on day T, and the shares are held without delivery. The VaR margin is 12% and extreme loss margin is 3%…
- In the context of a stock broker's risk management, what is the main purpose of a 'Value at Risk (VaR) margin' collected on a position?