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

A broker's client, Ms. Rao, has a ledger showing a credit balance with the broker, and she has not traded for a long time. Under SEBI's framework on running account settlement, which is the correct practice for the broker?

The broker must settle the client's funds and securities at the periodic frequency prescribed by SEBI, based on the client's running account authorisation, and return the balances as required. Client money cannot be used for the broker's proprietary trading or retained indefinitely.

  1. ASettle the client's funds and securities at the periodic frequency prescribed by SEBI, unless the client has given a valid running account authorisation, and then return the balance as requiredCorrect
  2. BRetain the credit balance indefinitely as free funds for the broker's proprietary trading
  3. CTransfer the balance to the exchange's investor protection fund after one month
  4. DSettle only when the client closes the trading account

Explanation

Client funds must be settled periodically as prescribed, even where a running account authorisation exists, with the balance returned as per the rules. Client money cannot be used for proprietary trading, so the other options are wrong.

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