Skip to content

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

A client, Mr Rao, buys shares through a broker and then fails to pay for them. The broker wants to recover dues by selling the client's securities lying in the broker's pool account. Which position is consistent with the SEBI rules on client securities?

Client securities must stay segregated from the broker's own assets, and the broker can sell them against dues only through the permitted risk management route that protects the client. Moving them to the proprietary account or pledging them for the broker's own funding is prohibited under SEBI rules.

  1. AClient securities must be held in the client's own demat account or a designated client account, and the broker can dispose of them for dues only through the permitted route with the client's rights preservedCorrect
  2. BThe broker can freely transfer all client securities to its own proprietary account to adjust dues
  3. CThe broker may pledge the client's securities with any bank to raise its own funds
  4. DThe broker may sell the securities only after obtaining a court order in every case

Explanation

SEBI rules require client securities to be kept segregated and prohibit brokers from using them for proprietary purposes or pledging them for own funding. Recovery of dues is allowed only through permitted mechanisms, such as the margin pledge and sale under the risk management policy. Hence the first option is the only consistent one; a court order is not needed in every case.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Securities Broking Operations shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Securities Broking OperationsFree diagnostic mock

More Introduction to Securities Broking Operations questions