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

A clearing member's trades on a day are: Client A buys 1,000 shares of a stock and Client B sells 600 shares of the same stock, both through the same clearing member in the same settlement. How does the clearing corporation compute the member's obligation for that stock if it nets across clients' proprietary positions only, not client positions?

The member has a gross obligation: it must receive 1,000 shares for Client A and deliver 600 shares for Client B. Obligations are netted only within the same client's own positions, never across different clients, so the positions are not offset against each other.

  1. ANet 400 shares to receive, because client positions are netted with each other
  2. BGross obligation of 1,000 shares to receive and 600 shares to deliver, because client positions are not netted against each otherCorrect
  3. CNet 400 shares to deliver
  4. DNo obligation, because both trades are in the same member

Explanation

Netting is done separately for each client and is not done across different clients. Client A's 1,000 shares purchased and Client B's 600 shares sold are therefore separate obligations. Netting them together would wrongly mix the clients' positions.

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