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

A stock broker's client defaults and the broker's own funds are inadequate. The exchange uses the Investor Protection Fund (IPF) only for which of the following purposes?

The Investor Protection Fund is used to compensate genuine investor claims arising from a broker's default or expulsion, up to limits prescribed by the exchange. It does not cover a broker's proprietary losses, exchange technology spending, or margin funding for brokers.

  1. APaying the broker's own trading losses on proprietary positions
  2. BCompensating genuine investor claims against a defaulting broker, up to the limits set by the exchangeCorrect
  3. CFunding the exchange's technology upgrades
  4. DProviding margin to brokers for intraday leverage

Explanation

The IPF is maintained by exchanges to compensate investors whose claims arise from a defaulting or expelled broker, subject to prescribed limits and verification. It is not meant for broker proprietary losses, exchange expenses, or margin funding.

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