NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
A trading member fails to meet its pay-in obligation of funds to the clearing corporation on the settlement day. Which action is the clearing corporation most likely to take first?
The clearing corporation treats the shortfall as a member default, levies penalty, and recovers the amount from the member's deposits and collateral, using the settlement guarantee fund if needed. It does not cancel others' trades, delay market settlement, or ask other investors to pay, because it guarantees settlement.
- ATreat the member as short in funds, levy penalty and use the member's deposits or collateral to meet the shortfallCorrect
- BCancel the trades of all other members in that settlement
- CPostpone the settlement for the entire market
- DAsk the investor-side buyers to pay the shortfall directly
Explanation
The clearing corporation guarantees settlement and manages defaults by recovering from the defaulting member's margin deposits, collateral and, if needed, the settlement guarantee fund. Penalties and possible disablement of trading also follow. Cancelling others' trades or postponing the market would defeat the guarantee.
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.
More Clearing Process questions
- In the clearing process of an Indian stock exchange, which entity interposes itself as the legal counterparty to every trade, becoming the b…
- A clearing member has a net delivery obligation in a security but fails to deliver on the pay-in day. Under the usual exchange process for s…
- A clearing member fails to deliver 500 shares of a company at pay-in, and the shares are not available for the buyer. Which course is follow…
- In the clearing process of a stock exchange in India, which entity interposes itself between the buying and selling clearing members and bec…
- A clearing member fails to meet its pay-in obligation of funds on settlement day. Which sequence best reflects the typical action of the cle…
- A clearing member wants to understand the role of the Settlement Guarantee Fund (SGF) maintained by a clearing corporation. Which statement …