NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A clearing member has a settlement obligation, and the clearing corporation holds collateral from the member in the form of cash and approved securities. Which statement best describes how margin collateral and mark-to-market margin work together in risk management of the clearing process?
Mark-to-market margin is collected to cover notional losses on open positions from price movements, while the collateral a member deposits with the clearing corporation secures its margin and other obligations. Together they protect the clearing corporation against member default.
- AMark-to-market margin is collected to cover notional losses on open positions, while collateral deposited with the clearing corporation backs the member's margin and other obligationsCorrect
- BMark-to-market margin is refunded to the member at the start of each day regardless of price changes
- CCollateral is held only to pay the exchange's trading fees, not for risk
- DMark-to-market margin applies only to fully paid delivery trades that have been settled
Explanation
Mark-to-market margin is levied on notional losses arising from price movements on open positions, and the member's deposited collateral stands as security for margins and obligations. The other statements misdescribe MTM as always refundable, limit collateral to fees, or restrict MTM to settled trades, which is wrong because it is about open positions.
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