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

A trading member wants to take a proprietary position and also trade for clients. Which practice is required for keeping client and own money separate?

Brokers must keep client money in separate client bank accounts and never use it for their own proprietary trading. Temporary use, pledging client securities for own borrowing, or limiting segregation to securities only are all prohibited.

  1. AClient funds may be used for the broker's own trades if the broker returns them next day
  2. BClient funds must be kept in a separate client bank account and not used for proprietary tradingCorrect
  3. CClient securities can be pledged for the broker's own borrowing
  4. DSeparation applies only to securities, not funds

Explanation

Brokers must hold client money in separate designated client bank accounts and cannot use it for proprietary trades or other clients' obligations. Using client funds even temporarily is prohibited. Pledging client securities for the broker's own borrowing is not allowed. Segregation applies to both funds and securities.

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