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

A broker's trading member receives Rs 5,00,000 from a client as a margin deposit and Rs 20 lakh worth of securities in the client's name. Which handling is consistent with SEBI's client funds and securities rules?

Client funds must be kept in a segregated client bank account and used only for the client's own transactions. Brokers cannot use them for proprietary trading, own borrowing or another client's obligations, because that is misuse of client assets under SEBI rules.

  1. AUse the client's funds to meet the broker's own proprietary trading obligations
  2. BKeep client funds in a separate client bank account and not use them for any purpose other than the client's own transactionsCorrect
  3. CUse client securities as collateral for loans for the broker's own business
  4. DPledge client securities for another client's margin requirement

Explanation

Client money must be kept in separate client bank accounts and used only for the respective client's obligations. Using it for proprietary trades, own borrowing, or another client's margin is prohibited as misuse of client assets.

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