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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management

A stock broker's client has a debit balance and no further margin on a day when the client's open futures position shows a mark-to-market loss. What action is the broker's RMS most appropriately expected to take?

The broker's risk system should demand additional margin, block new positions, and square off the open positions if the shortfall is not met within the policy. Ignoring the loss, treating it as profit, or passing it to the exchange would be wrong.

  1. ACall for additional margin and restrict fresh positions, squaring off if the shortfall is not met as per the agreed policyCorrect
  2. BIgnore the loss until the contract expires
  3. CCredit the loss to the client's account as profit
  4. DTransfer the loss to the exchange immediately

Explanation

Mark-to-market losses reduce the client's available margin. The broker's RMS should demand additional funds, block fresh exposure, and square off positions per its risk policy if the shortfall persists. Ignoring it or crediting it is wrong and the exchange does not absorb the loss.

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