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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

A custodian settles institutional trades for a foreign portfolio investor. The trade done through broker Mehta Securities is confirmed by the custodian before the cut-off. Which statement best describes the custodian's position in this process?

The custodian confirms the trade details provided by the broker and settles the obligation on behalf of the institutional client. It acts as a settlement intermediary with the clearing corporation but does not trade on the exchange or provide the settlement guarantee.

  1. AIt becomes the trading member and takes the position on the exchange screen
  2. BIt confirms the trade details and settles the obligation on behalf of the institutional client, which has a clearing relationship with the clearing corporationCorrect
  3. CIt guarantees the trade in place of the clearing corporation
  4. DIt reports the trade to the issuer for transfer of shares

Explanation

For institutional trades, the custodian confirms the trade details given by the broker and settles the obligation on behalf of the client through its clearing membership. It does not trade on screen, does not replace the clearing corporation's guarantee, and does not deal with the issuer for transfer in demat form.

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