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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process

A clearing member fails to meet its pay-in obligation of funds on settlement day. Which fund or resource of the clearing corporation is used first to cover the shortfall under the typical default waterfall?

The defaulting member's own resources, such as its margins, deposits and penalties, are used first to cover the shortfall. Only if these are insufficient are the clearing corporation's contribution and then other members' contributions applied.

  1. AContributions of non-defaulting members to the core settlement guarantee fund
  2. BPenalties, the defaulter's margins and other depositsCorrect
  3. CGovernment of India grants
  4. DInvestor Protection Fund of the exchange

Explanation

The defaulter's own resources, namely margins, deposits and penalties, are used first, followed by the clearing corporation's contribution and then other members' contributions. Non-defaulters' contributions come later, and government grants are not part of the waterfall.

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