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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, which statement about a broker offering the facility to clients is correct?

The broker must obtain explicit client consent, and the securities bought under the facility are kept as collateral through a pledge arrangement. Brokers cannot use client securities without authorisation, and the facility relates to eligible cash market stocks, not just futures.

  1. AThe broker must obtain the client's explicit consent and the securities purchased are held as collateral in a separate pledge arrangementCorrect
  2. BThe broker may use any client's fully paid securities as collateral without consent
  3. CThe facility can be offered by any broker without prior exchange approval
  4. DMargin trading permits purchases only in the futures segment

Explanation

Margin trading funding lets clients buy stocks by paying part of the value with the broker funding the rest, against collateral. It requires a client agreement and explicit consent, and securities are held as collateral through pledge arrangements. Using client securities without consent is not allowed, and it applies to cash market stocks, not just futures.

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