NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A client's margin shortfall is observed by the broker at the end of the day. Under SEBI's margin rules, what is a likely consequence for the broker if the shortfall is not collected from the client?
The broker may be penalised by the exchange or clearing corporation for short or non-collection of client margin. Margin collection is a regulatory obligation with no exemption for long-standing clients, and the clearing corporation does not absorb the shortfall.
- AThe shortfall is ignored if the client is a long-standing customer
- BThe broker may face penalty on the shortfall charged by the exchange or clearing corporationCorrect
- CThe clearing corporation pays the shortfall on the client's behalf at no cost
- DThe client's trades are automatically cancelled the next month
Explanation
Clearing corporations monitor client-level margin collection and levy penalties on brokers for short or non-collection of margins. There is no exemption for long-standing clients, and the clearing corporation does not fund shortfalls. Trades are not automatically cancelled monthly.
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