NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
A clearing member fails to deliver shares on the securities pay-in day for a sale made by its client. Which mechanism does the exchange use to ensure the buyer still receives the securities?
The exchange conducts an auction for the short-delivered securities. It buys them in the market on behalf of the defaulting seller and gives them to the buyer, and only if the auction fails is the trade closed out under the exchange's close-out rules.
- AAuction of the sharesCorrect
- BImmediate cancellation of the buyer's trade with no compensation
- CClosing the buyer's account
- DTransfer of the trade to the next quarter
Explanation
When a seller fails to deliver, the exchange conducts an auction to buy the shortfall securities and deliver them to the buyer. If the auction fails, the trade is closed out at a price set under exchange rules. Cancelling the trade without compensation is not the normal process.
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
- In the Indian equity cash market under the T+1 rolling settlement cycle, a trade executed on Tuesday (no holidays intervening) is ordinarily…
- Who guarantees the settlement of trades executed on a recognised stock exchange in India, so that the buyer or seller is protected against c…
- Which entity guarantees the settlement of trades executed on a recognised stock exchange in India, even if a counterparty clearing member de…
- A client sells shares held in her demat account through a broker. For the delivery to be settled properly, which action must occur by the pa…
- Broker A has a net pay-in obligation of ₹8 lakh in funds to the clearing corporation for a settlement. The broker has funds shortfall of ₹1 …
- A broker's client sells 500 shares in a T+1 settlement but the shares are held in the client's demat account with a different depository par…