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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

A stock broker receives Rs 5,00,000 from a client for buying shares. Under SEBI rules on client funds, what must the broker do with this money?

The broker must hold the Rs 5,00,000 in a separate client bank account and keep it segregated from its own funds. Client money can only be used for that client's own settlement obligations, not for proprietary trading or for other clients.

  1. AUse it for the broker's own proprietary trades until settlement day
  2. BKeep it in the client bank account and not mix it with the broker's own fundsCorrect
  3. CDeposit it in the broker's own current account to improve liquidity
  4. DLend it to another client who has a debit balance

Explanation

Client money must be kept in a designated client bank account, separate from the broker's own funds. Using one client's funds for the broker's proprietary trades or for another client breaches the segregation requirement. Settlement obligations are met from client funds only for that client's own dues.

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