Skip to content

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

A clearing member's clearing corporation exposure is monitored using the member's collateral. Which of the following correctly describes how a clearing corporation treats a member who fails to meet its pay-in obligation of funds on settlement day?

The clearing corporation can appropriate the defaulting member's deposits and collateral to cover the funds shortfall and may also restrict or disable the member's trading. Settlement is protected by its guarantee mechanism, not by waivers or free extensions.

  1. AIt waives the shortfall if the member is a large institution
  2. BIt may use the member's deposits and collateral to cover the shortfall and may take further action such as restricting tradingCorrect
  3. CIt transfers the shortfall to the buying client's account directly
  4. DIt extends the pay-in deadline by a week without any penalty

Explanation

Clearing corporations maintain a settlement guarantee mechanism and can appropriate the defaulting member's margin deposits and collateral to meet the shortfall, and may also impose restrictions or penalties. Waivers, passing the shortfall to clients or free extensions are not part of the framework.

Did you get it right without looking?

One question tells you little. A timed set on Clearing Process shows your real accuracy, how long you take and where you lose marks.

Practise Clearing ProcessFree diagnostic mock

More Clearing Process questions