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

A broker's client, Ms. Kulkarni, has a debit balance in her ledger after settlement. Her broker also holds her unpledged shares in her demat account, which she has not sold. Which statement reflects the correct handling of client funds and securities by the broker?

The broker must hold client funds in a segregated client bank account and must not use them for its own business or for other clients' dues. Mixing funds, lending one client's credit to another, or selling holdings arbitrarily would breach the client money segregation rules.

  1. AThe broker must keep client funds in a segregated client bank account and not use them for proprietary or other clients' duesCorrect
  2. BThe broker may pool all client funds with its own funds for convenience
  3. CThe broker may use one client's credit balance to fund another client's trades
  4. DThe broker may sell her demat holdings at will without any notice

Explanation

Client money must be kept in a separate client bank account and cannot be used for the broker's own dealings or for another client's obligations. Pooling with the broker's funds or funding other clients violates the segregation requirement. Selling her holdings at will is not permitted by the rule.

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