NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
Which action may a stock exchange's risk management system typically take when a broker's collateral falls short of the margin requirement and the shortfall persists?
When a member's margin shortfall persists, the exchange or clearing corporation levies a penalty on the shortfall and can restrict further trading or exposure until it is made good. Waiving margins or raising limits would weaken risk control.
- AIncrease the broker's trading limit
- BImpose penalty on the shortfall and restrict the broker's further trading or exposureCorrect
- CWaive the margin requirement for the broker
- DReduce the broker's settlement obligations
Explanation
Margin shortfalls attract penalties and the exchange or clearing corporation can curb fresh positions or exposure until the shortfall is made good. Increasing limits or waiving margin would defeat the purpose of risk control.
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