NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A clearing member wants to understand the role of the Settlement Guarantee Fund (SGF) maintained by a clearing corporation. Which statement best describes its purpose?
The Settlement Guarantee Fund exists to cover shortfalls when a clearing member defaults on its settlement obligations, so that the clearing corporation can still complete settlement and honour its guarantee to non-defaulting members, rather than paying brokerage, funding listings or refunding taxes.
- AIt is used to meet shortfalls arising when a clearing member defaults on settlement obligationsCorrect
- BIt is used to pay brokerage to trading members
- CIt is used to fund listing of new companies
- DIt is used to refund securities transaction tax to investors
Explanation
The SGF/Core SGF is a pool built from contributions of the clearing corporation, members and penalties, kept to cover losses from member default so that settlement is guaranteed. It has nothing to do with brokerage, listings or STT refunds.
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