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

A stock broker in India wishes to offer clients a service that lets them apply for an IPO through the broker's platform using UPI as the payment mechanism. Under this arrangement, what happens to the application amount?

In a UPI-based IPO application, the amount is only blocked in the investor's own bank account until allotment. Only the value of shares actually allotted is debited, and the balance is released. It is not paid to the broker or issuer at application time.

  1. AThe amount is transferred immediately to the broker's own bank account
  2. BThe amount is blocked in the investor's bank account until allotment and is debited only for the shares allottedCorrect
  3. CThe amount is paid to the issuer company on the day of application
  4. DThe amount is deposited with the depository participant as margin

Explanation

In the UPI-based ASBA process the investor's funds remain in the investor's own bank account and are only blocked after the mandate is accepted. The amount is debited only for the shares actually allotted, and the rest is unblocked. The money is not moved to the broker or to the issuer at the time of application.

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