NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market
A stock broker wants to offer trading to clients through an authorised person who will solicit clients and receive orders on behalf of the broker, but will not hold client funds or securities. Under exchange rules, which statement best describes the position of this authorised person?
The stock broker is fully responsible for the acts of its authorised person, who must be approved by the exchange and acts only as the broker's agent. The authorised person cannot clear or trade independently, and cannot be treated as solely liable to clients.
- AThe broker alone bears responsibility for all acts of the authorised person, who must be registered with the exchange as approved by itCorrect
- BThe authorised person becomes a clearing member in its own right and settles directly with the clearing corporation
- CThe authorised person is liable to clients only and the broker has no responsibility for its acts
- DThe authorised person can execute trades on the exchange in its own name without any link to the broker
Explanation
An authorised person works as an agent of the stock broker and is approved by the exchange. The broker remains responsible for the acts of the authorised person and for client dealings. The authorised person cannot trade in its own name or clear independently.
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