NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A trading member has a client who bought shares worth Rs 10 lakh on a trade day. The broker received no funds from the client, though the client had a ledger credit balance of Rs 2 lakh. Under SEBI's requirements on client funds and securities, which statement is correct about the broker's handling of the client's funds and securities?
The broker must keep client funds and securities separate from its own and must not use one client's assets for another client or for its own obligations. Using credit balances for proprietary trades or covering other clients' shortfalls violates SEBI norms.
- AThe broker may use the client's credit balance to fund the proprietary trades of the broker
- BThe broker must keep client funds segregated from its own and may not use one client's funds or securities for another client or for its own obligationsCorrect
- CThe broker may pledge the client's fully paid securities for its own borrowings if it informs the client later
- DThe broker may pool all client credit balances and use them to meet any client's shortfall
Explanation
SEBI norms require segregation of client money and securities from the broker's own, and prohibit using one client's assets for another client or the broker's proprietary dealings. Pledging client securities is allowed only for that client's own obligations with the client's authorisation. Pooling client credits to cover other clients' shortfalls is a violation.
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