Skip to content

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

A trading member observes that a client who placed buy orders through the member has repeatedly failed to pay for the purchases by the due date. Which action is most consistent with sound risk management practice by the broker?

The broker should reduce or stop the defaulting client's exposure limit and recover the dues from margins or securities held, as permitted by rules. Continuing unlimited trading or shifting dues to other clients' accounts is improper and increases the broker's risk.

  1. AContinue to accept orders without any limit since the client is a long-standing one
  2. BReduce or stop the client's exposure limit and recover dues, using the margin or securities held where permittedCorrect
  3. CTransfer the client's dues to another client's account
  4. DDelay reporting the default to the exchange indefinitely

Explanation

A broker should curb further exposure to a defaulting client and recover dues from the margin or collateral held, as per its risk policy and rules. Shifting dues to another client's account is improper and misuse of client funds, and unlimited exposure increases risk.

Did you get it right without looking?

One question tells you little. A timed set on Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Risk ManagementFree diagnostic mock

More Risk Management questions