NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
Which risk arises when a broker's client fails to pay for purchased securities or deliver sold securities by the pay-in deadline, leaving the broker to meet the obligation to the clearing corporation?
This is counterparty or credit risk. The client fails to meet its payment or delivery obligation, but the broker is still bound to the clearing corporation and so bears the loss. It is unrelated to interest rates, reporting or technology risk.
- ACounterparty or credit riskCorrect
- BInterest rate risk
- CRegulatory reporting risk
- DTechnology obsolescence risk
Explanation
When a client defaults on funds or securities, the broker must still meet its obligation to the clearing corporation, so it bears the loss from the counterparty failing. This is counterparty (credit) risk, not interest rate, reporting or technology risk.
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