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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

A broker's client wants to know the difference between a stock exchange's role and that of a clearing corporation. Which statement is correct?

The exchange provides the trading platform where orders are matched, while the clearing corporation novates trades, determines obligations and guarantees settlement. Holding securities in electronic form is a depository function, so the reversed or merged role descriptions are incorrect.

  1. AThe clearing corporation matches orders, while the exchange guarantees settlement
  2. BThe exchange provides the trading platform for matching orders, while the clearing corporation novates trades and guarantees settlementCorrect
  3. CBoth only maintain records of beneficial owners of securities
  4. DThe exchange holds securities of investors in electronic form while the clearing corporation lists companies

Explanation

Exchanges provide the trading system where orders match. The clearing corporation computes obligations, becomes the counterparty through novation and guarantees settlement. The option reversing roles is wrong, and holding securities in electronic form is the depository's function.

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