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

A trading member receives funds from a client on a Monday and the client has no pending obligation. Under the SEBI framework on running account settlement, which statement is correct about the client's unused funds lying with the broker?

The broker must settle the client's running account, returning unused funds and securities, at the periodicity SEBI prescribes. Client money cannot be used for the broker's own trades or held until account closure, because client funds must be kept segregated and returned as per the rules.

  1. AThe broker must settle the client's funds and securities periodically as per the prescribed running account settlement schedule unless the client has opted otherwise within the rulesCorrect
  2. BThe broker may retain the client's funds indefinitely for use in its own proprietary trades
  3. CThe broker must return the funds only when the client closes the account
  4. DThe broker must convert the funds into fixed deposits in the client's name every day

Explanation

SEBI requires brokers to settle running accounts of clients, with funds and securities returned at the prescribed periodicity (monthly or quarterly depending on the client's choice and the current circular), subject to the conditions. Using client funds for proprietary purposes is prohibited. Retaining funds until account closure is not permitted.

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