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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process

A clearing member has deposited collateral with the clearing corporation. Under the SEBI framework on collateral, which statement about the cash component is correct for margin obligations in the equity derivatives segment?

At least 50% of the total liquid assets deposited as collateral must be in cash or cash equivalents, as per the SEBI norm for the equity derivatives segment. The remainder may be in other approved liquid securities, so collateral cannot be entirely shares.

  1. ACash and cash equivalents must constitute at least 50% of the total liquid assets deposited as collateralCorrect
  2. BCash may be entirely replaced by equity shares as collateral
  3. COnly bank guarantees are accepted as collateral
  4. DNo minimum cash component is required

Explanation

The SEBI requirement is that at least 50% of the total liquid assets deposited as collateral must be in cash or cash equivalents such as cash, bank FDRs, bank guarantees, government securities and T-bills, as per the rule applicable to the F&O segment. Fully replacing cash with shares breaches this requirement.

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