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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

Under the SEBI framework for Margin Trading Facility, the broker obtains funds to finance clients' MTF positions. Which of the following is a permitted source for the broker?

A broker may finance Margin Trading Facility positions from its own net worth or from borrowings from banks and NBFCs. It cannot use other clients' free balances or margin money, and the settlement guarantee fund is not available for lending.

  1. AClient's own unrelated trading margin funds
  2. BFunds received from other clients' free credit balances
  3. CBorrowings from NBFCs or banks, or the broker's own net worthCorrect
  4. DFunds taken from the exchange's settlement guarantee fund

Explanation

Brokers may fund MTF from their own net worth or from borrowings such as from banks and NBFCs. Using client free balances or other clients' margin would misuse client money, and the settlement guarantee fund belongs to the clearing corporation and is not available for such lending.

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