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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

A broker's client holds shares bought under MTF. Which of the following is correct about those shares?

Shares bought under MTF are held as collateral for the funding and must be kept identifiable and separate from other clients' holdings. The client remains the beneficial owner, and the broker cannot use them for its proprietary trading or lend them without authority.

  1. AThey are held by the broker as collateral and must be kept separately as MTF securities, not mixed with other clients' sharesCorrect
  2. BThey are transferred permanently to the broker's proprietary account
  3. CThey can be pledged by the broker for its own proprietary trading
  4. DThey are freely lendable by the broker without the client's knowledge

Explanation

Securities purchased under MTF serve as collateral for the funding and are tracked in a separate MTF pledge arrangement, identified by client. They cannot be used for the broker's own purposes, and the client remains the beneficial owner.

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