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NISM Certifications · NISM-Series-VI: Depository Operations · Functions of Depository Participant - Trading and Settlement

A client gives an on-market delivery instruction to transfer shares for settlement. Which statement best describes the purpose of the pay-in in the settlement cycle?

Pay-in is the stage where members deliver securities and funds to the clearing corporation. The reverse stage is pay-out, when securities and funds are released to the entitled members. Pay-in therefore comes first and prepares the ground for final settlement.

  1. ASecurities and funds are delivered by members to the clearing corporationCorrect
  2. BSecurities are delivered by the clearing corporation to buyers
  3. CThe issuer pays dividends to shareholders
  4. DThe depository pays the exchange a fee

Explanation

Pay-in is the process in which members deliver securities (sellers) and funds (buyers) to the clearing corporation. Pay-out is the reverse, where the clearing corporation delivers securities and funds to the entitled members. Hence the statement about delivery to buyers describes pay-out.

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