NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A trading member wants to square off a client's open positions because the client failed to meet a margin call. Which condition makes this action most defensible operationally?
A broker can square off positions when the client agreement and the broker's risk management policy allow liquidation on failure to meet margin calls. The action must follow that policy. It does not need SEBI approval for each case or any wait until the next financial year.
- AThe broker acts on its own wish without any prior documentation
- BThe client agreement permits the broker to liquidate positions on non-payment of margins, and the action is carried out as per the risk management policyCorrect
- CThe broker has to wait until the next financial year
- DThe broker needs prior approval from SEBI for each square-off
Explanation
Liquidation rights come from the client-broker agreement and the broker's risk management policy. No SEBI approval is needed for each individual case, and waiting a year makes no sense.
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