NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's system rejects a client order because the order value exceeds the client's available exposure limit based on margin deposited. Which risk management feature is operating?
This is a pre-trade risk control. The broker's system checks the order against the client's available exposure limit linked to margin and rejects it before it reaches the exchange, preventing exposure from exceeding the collateral the client has provided.
- APre-trade risk controlCorrect
- BPost-trade reconciliation
- CSettlement netting
- DAuction process
Explanation
Rejecting orders before they reach the exchange based on available limits is a pre-trade risk control. Reconciliation and netting occur after trades, and auctions handle short deliveries.
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