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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 the facility of buying shares using funds in the client's bank account through the UPI mechanism for primary-market-like blocking of funds in secondary market trading. What is the principal benefit of this arrangement for the client?

The key benefit is that the client's money stays in the client's own bank account, with only the required amount blocked for trades and debited at settlement. The broker does not hold the funds, and normal clearing corporation settlement still applies to the trades.

  1. AThe client's funds stay in the client's own bank account until the trade is settled, with only the required amount blockedCorrect
  2. BThe broker gets full ownership of the client's funds on blocking
  3. CThe client need not pay any amount for the trades
  4. DThe trades are exempt from clearing corporation settlement

Explanation

Under UPI block mechanism for secondary market, the client's money remains in the client's bank account and only the needed amount is blocked for trading, and it is debited at settlement through the clearing corporation. The broker does not take ownership of the funds, and settlement obligations still apply.

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