NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A broker's client sold 500 shares on day T. The client had not delivered the shares to the broker by pay-in, and the broker also failed to deliver to the clearing corporation. Which statement best describes the consequence under the settlement framework?
The clearing member is responsible for the shortage, so the clearing corporation auctions the securities to deliver to the buyer. The broker bears the auction cost and can then recover the loss from the defaulting client under the client-broker agreement.
- AThe shortage is dealt with at the clearing member level by auction, and the broker may recover losses from the client as per its rightsCorrect
- BThe buyer must wait indefinitely until the seller delivers
- CThe clearing corporation cancels the buyer's trade without compensation
- DThe depository debits the buyer's account for the shortage
Explanation
The clearing member is responsible to the clearing corporation for the obligation. The shortage goes to auction, and the broker, who bears the auction cost, can recover it from the defaulting client under its client agreement. The buyer is not left waiting and no buyer account is debited.
Did you get it right without looking?
One question tells you little. A timed set on Settlement Process shows your real accuracy, how long you take and where you lose marks.
More Settlement Process questions
- Which entity guarantees the settlement of trades executed on a stock exchange by becoming the central counterparty to every trade through no…
- In the Indian equity cash market, trades executed on a normal rolling segment of a recognised stock exchange are currently settled on which …
- On the pay-out day, securities due to a buyer client are first credited by the clearing corporation to which account before reaching the cli…
- A broker's client sells 500 shares of a company on the cash segment. Under the T+1 cycle, the client has not yet delivered the shares into t…
- If a short-delivered security cannot be purchased in the auction, what is the usual result for the buyer?
- A clearing member fails to deliver shares on the pay-in day for a sell obligation in the equity cash segment. Which mechanism does the excha…