NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
Broker A has a net pay-in obligation of ₹8 lakh in funds to the clearing corporation for a settlement. The broker has funds shortfall of ₹1 lakh on pay-in day. Which is the most accurate consequence in the settlement system?
A funds shortfall on pay-in is a default by the clearing member. The clearing corporation can recover the amount from the member's deposits and collateral and charge penalties. The guarantee mechanism protects other members so their pay-out is not delayed.
- AThe clearing corporation may treat the shortfall as a default and recover it from the broker's deposits and collateral, with penaltiesCorrect
- BThe shortfall is automatically carried forward interest-free to the next settlement
- CThe buyer clients' securities are withheld permanently
- DPay-out to all other members is delayed until the broker pays
Explanation
Failure to meet funds pay-in is a default. The clearing corporation can recover the shortfall from the member's margin deposits and collateral and levy penalties. Carry-forward without penalty is not permitted. The settlement guarantee mechanism ensures other members still receive pay-out, so they are not delayed.
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