Question

Members should have a prudent system of risk management to protect themselves from client default. _ _ _ _ _ _ is an important element of such a system.

• A. NSCCL
• B. Margin
• C. Capital
• D. Unique Client Code

Hint:

Margin is the key risk management tool used in the securities market to protect brokers and dealers from client defaults.

Answer 1

The Correct Option is B

Step 1: Understanding risk management in the securities market.
In the securities market, margin refers to the collateral required by brokers from clients to cover potential losses in case of defaults. Margin acts as a safety buffer, ensuring that clients can cover their positions.

Step 2: Explanation of the options.
• (A) NSCCL: Incorrect. NSCCL (National Securities Clearing Corporation Limited) is involved in clearing and settlement but is not the primary element of risk management.
• (B) Margin: Correct. Margin is the most important element to protect against client default.
• (C) Capital: Incorrect. While capital is important for any business, margin specifically protects against client defaults in trading.
• (D) Unique Client Code: Incorrect. A Unique Client Code helps in identification but does not directly manage risk from client defaults.

Step 3: Conclusion.
Therefore, the correct answer is (B) Margin.

Final Answer: Margin.