NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
In the context of a stockbroker's risk management framework, what is the main purpose of a 'client-level exposure limit' set by the broker's risk management system?
A client-level exposure limit caps the positions or trading exposure a client can take relative to the margin and collateral available. It protects the broker from default risk. It has nothing to do with brokerage rates, settlement timing or the number of demat accounts.
- ATo cap the total open positions or trading exposure a client can build relative to the collateral and margin availableCorrect
- BTo fix the brokerage rate charged to that client
- CTo decide the settlement day for the client's trades
- DTo limit the number of demat accounts the client may open
Explanation
Exposure limits restrict how much risk a client can take against the margin or collateral deposited with the broker. Brokerage rates, settlement days and demat accounts are unrelated to risk limits.
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