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

A stock broker offers a client a facility under which the client can buy shares by paying only a part of the value and the broker funds the balance, with the shares held as collateral. Under SEBI rules, which term describes this facility?

The facility is called Margin Trading Facility. The client pays only a portion of the trade value, the broker finances the balance, and the purchased shares are held as collateral. It differs from securities lending, algorithmic trading and portfolio management.

  1. AMargin Trading FacilityCorrect
  2. BSecurities lending and borrowing
  3. CAlgorithmic trading
  4. DPortfolio management service

Explanation

Margin Trading Facility lets eligible clients buy listed shares by paying a part of the value upfront while the broker funds the rest against collateral of the purchased shares. Securities lending is the lending of shares for delivery, not funding of purchases. Algo trading concerns order automation and PMS is discretionary fund management.

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