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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

A client who buys shares through a broker under the MTF fails to maintain the required margin after a sharp price fall. What is the broker's most appropriate action under the exchange framework?

The broker should issue a margin call and, if the client does not top up within the permitted time, liquidate the MTF securities as per the agreement and exchange rules. Ignoring the shortfall or shifting the loss to other clients is improper.

  1. AAsk the client to top up margin and, if not done within the permitted time, liquidate the MTF securities as per the agreementCorrect
  2. BIgnore the shortfall until the client's next trade
  3. CTransfer the loss to other clients' accounts
  4. DReport the shortfall only at year end

Explanation

The broker must monitor margins and, on a shortfall, call for additional margin. If the client fails to meet it, the broker may square off the collateral securities according to the client agreement and exchange rules. Passing losses to other clients is improper.

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