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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, Mr. Iyer, has an unresolved dispute. The broker has also defaulted on its obligations and been declared a defaulter by the exchange. From which fund would eligible investor claims against a defaulting broker be considered, subject to prescribed limits?

Eligible investor claims against a defaulting broker are considered from the exchange's Investor Protection Fund, subject to prescribed limits. The clearing corporation's settlement guarantee fund covers settlement shortfalls among members, not direct investor compensation, so it is not the right source for such claims.

  1. ACore settlement guarantee fund of the clearing corporation
  2. BInvestor Protection Fund of the exchangeCorrect
  3. CTrade guarantee fund of the depository
  4. DIssuer's reserve fund

Explanation

The exchange maintains an Investor Protection Fund, from which eligible claims of investors against a defaulting or expelled broker are compensated up to prescribed limits. The core settlement guarantee fund covers settlement shortfalls of the clearing corporation, not investor claims, and the other two funds are not applicable here.

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