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

A stock broker wishes to provide margin trading facility (MTF) to clients. Which statement is correct about funding of MTF by the broker?

A broker offering margin trading facility must finance it from its own funds or borrowings from permitted sources such as banks and NBFCs. It cannot use other clients' funds or securities for this purpose, because client assets must remain segregated and protected.

  1. AThe broker can fund MTF only from its own funds or borrowings from permitted sources such as banks and NBFCsCorrect
  2. BThe broker can use other clients' fully paid securities to fund MTF without their consent
  3. CThe broker can use funds of clients' unutilised credit balances freely
  4. DThe broker can fund MTF only by borrowing from other clients' ledger balances

Explanation

Brokers offering MTF must fund it from their own resources or permitted borrowings from banks, NBFCs and similar sources. Client money and securities cannot be misused to fund other clients' positions, so the other options violate client asset segregation.

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