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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment

A trading member's client wants to open a position in index futures. Which of the following statements best reflects the regulatory requirement regarding the client's margin collection?

Members must collect initial margin from clients upfront, before or at the time of taking the position, and report the collection to the clearing corporation. Collecting margins later, weekly, or treating it as a private arrangement goes against SEBI's upfront margin framework.

  1. AThe member may collect initial margin from clients only after the position is squared off
  2. BThe member must collect upfront initial margin from the client and report it to the clearing corporationCorrect
  3. CMargin is a matter between the member and the client and need not be reported anywhere
  4. DThe member may collect margin from the client at the end of the week for all positions

Explanation

Under SEBI's upfront margin norms, clearing members and trading members must collect initial margins from clients upfront and report client-level margin collection to the clearing corporation. Collecting after square-off or weekly defeats the purpose of upfront collection. Hence option 2 is correct.

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