Introduction to Securities Broking Operations

What is the purpose of SEBI’s requirement for brokers to maintain evidence of client order placement?

To increase the paperwork burden on brokers.
To strengthen regulatory provisions against unauthorized trades.
To discourage clients from placing orders.
To promote manual order entry.

What is Direct Market Access (DMA)?

A method for clients to trade directly on the stock exchange without a broker.
A facility for brokers to manually enter client orders.
A type of algorithmic trading.
A form of email communication between brokers and clients.

What advantages does DMA offer to clients?

Reduced transparency and increased risk.
Slower execution of client orders.
Greater control over orders and reduced risk of errors.
Limited access to decision support tools.

What is Algorithmic Trading?

Manual entry of orders by clients.
High-frequency trading with latency sensitivity.
Any order generated using automated execution logic.
A type of telephone recording system.

What minimum risk controls are required for algorithmic trading as per SEBI?

Price check and Quantity limit check.
Authentication and encryption.
Physical record and email verification.
Telephone recording and SMS tracking.

What characterizes High Frequency Trading (HFT)?

A low daily portfolio turnover and low order-to-trade ratio (OTR).
Manual execution of orders with latency sensitivity.
A high daily portfolio turnover and high order-to-trade ratio (OTR).
Slower execution of orders with no automation.

When does an order get time-stamped in the trading system of the Exchange?

Before it is confirmed with the client.
After the client places the order.
Once it is entered into the broker's system.
After the Exchange gives confirmation of the order.

What is the primary goal of a risk management system in a trading firm?

To maximize profits
To minimize client exposure
To measure and manage exposure to various risks
To eliminate all risks associated with trading

What is the purpose of establishing standards and reports in a broker firm?

To reduce risk exposure
To meet regulatory requirements
To increase client ratings
To eliminate position limits

How is order matching typically done in an Exchange?

Based on alphabetical order
Based on order entry time only
On a price-time priority basis
Randomly

What is the purpose of a contract note in stock trading?

To provide investment advice to clients
To confirm trade execution and establish a legally enforceable relationship
To facilitate trade annulment
To automate trade settlement

What is Straight Through Processing (STP) in the context of institutional trades?

A mechanism to increase trade errors
A mechanism to increase trade errors
A system that automates end-to-end processing of financial transactions
A regulatory requirement for custodians

How often should contract notes be issued to clients?

Within 48 hours
Within 7 days
Within 24 hours
Within 30 days

What is the primary function of the front office in a brokerage firm?

Clearing and settlement of trades
Order capture and execution
Networking with clients
Multilateral netting of obligations

In the Indian securities market, what is the settlement cycle for the cash/equity segment?

T+1 Rolling Settlement
T+2 Rolling Settlement
T+3 Rolling Settlement
T+4 Rolling Settlement

What is the role of the clearing corporation in the settlement process?

Determining member obligations
Networking with clients
Initiating trade execution
Managing front office operations

What is the primary responsibility of the sales force in a brokerage firm?

Managing risk exposure
Executing trades
Building customer relationships and suggesting trading ideas
Multilateral netting of obligations

What is the purpose of account opening in a brokerage firm?

To execute trades immediately
To determine member obligations
To establish a legally enforceable relationship with clients
To automate trade execution

Which documents are included in the account opening kit for clients as per SEBI regulations?

Only the client's account number and PAN
A standardized set of documents, including KYC forms, rights and obligations, risk disclosure, and more
Only the client's signature
A list of trading strategies

What is the purpose of the ‘SARAL AOF’ for new individual investors in the Indian securities market?

To facilitate internet trading
To simplify the account opening process for cash segment participation
To enable margin trading
To provide multilingual support for trading

What is the purpose of the Central Know Your Client (CKYC) system in India?

To centralize stock trading
To standardize brokerage fees
To centralize and standardize KYC records across the financial sector
To regulate foreign investment

What is the primary difference between a market order and a limit order?

Market orders allow specifying a price, while limit orders do not.
Market orders guarantee execution at the specified price.
Limit orders execute immediately at the best market price available.
Limit orders require specifying a price, while market orders do not.

In a stop order, what is the trigger price?

The price at which the order will be executed
The price at which the order will be cancelled
The price at which the order will be activated and sent to the market
The highest price reached by the security in a trading session

What is the primary purpose of a Unique Client Code (UCC) in the trading process?

To track market prices in real-time
To uniquely identify clients for trading purposes
To automate order execution
To calculate taxes on trades

What does the term “placing orders through the internet/phone” refer to in the context of stock trading?

The process of executing trades at the best market price available.
Allowing clients to modify their existing orders.
The facility provided by stock brokers for clients to enter orders over the phone or through the internet.
Cancelling orders after they have been partially executed.