NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
In the context of a stock broker's risk management, which of the following best describes 'margin' collected from clients?
Margin is an upfront deposit collected from clients to cover potential losses from adverse price movements and default risk. It acts as a security cushion for the broker and clearing system, and is different from brokerage, taxes or penalties for late payment.
- AA fee charged by the broker for executing trades
- BA deposit collected upfront to cover potential losses from adverse price movementsCorrect
- CA tax levied on securities transactions
- DA penalty charged for late payment of dues
Explanation
Margin is a security deposit collected in advance to protect against potential loss arising from adverse price movements and client default. It is not a fee, tax or penalty. Brokerage and taxes are costs of trading, while delayed payment charges are separate.
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