NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's client holds shares in a demat account and wants them accepted as margin for trading. Under current SEBI framework, which is correct?
Shares are given as margin through a margin pledge created in the depository system, with the securities remaining in the client's own demat account. Transferring them to the broker's account or using a power of attorney for that purpose is not permitted.
- AThe broker may take the shares into its own demat account and use them as margin
- BShares must be pledged through the depository system via margin pledge, with the client's securities remaining in the client's demat accountCorrect
- CThe broker may take a power of attorney to transfer shares to its proprietary account
- DShares cannot be used as margin in any form
Explanation
Under SEBI's pledge framework, clients create a margin pledge in favour of the broker (which is re-pledged to the clearing corporation) through depositories, and shares stay in the client's account. Transferring to the broker's own account or using a power of attorney to do so is not permitted for margin purposes.
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