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

A stock broker wants to hold clients' funds and securities. Under SEBI rules on client money, which practice is correct?

Client funds must be kept in a separate designated client bank account, apart from the broker's own money. SEBI mandates segregation to protect investors, so using client funds or securities for proprietary trades, borrowing or mixed demat holdings is not permitted.

  1. AKeep client funds in the broker's own account to use for proprietary trades
  2. BKeep client funds in a separate designated client bank account, distinct from the broker's own fundsCorrect
  3. CPledge client securities to raise loans for the broker's business
  4. DMix client and proprietary securities in one demat account for convenience

Explanation

SEBI requires segregation of client assets from the broker's own assets. Funds go in a designated client account. Using client funds or securities for proprietary purposes or the broker's borrowing is prohibited, and mixing holdings in one demat account is also not allowed.

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