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

Broker Meera Securities has a client, Arjun, whose cash purchase trade is executed on the exchange. Which statement correctly describes the contractual position of Meera Securities for that trade as per standard market practice?

Meera Securities is responsible to the clearing corporation for settling the trade, while Arjun's obligation runs to the broker. Clients have no direct contract with the clearing corporation, which deals only with clearing members, so the broker bears the settlement liability to it.

  1. AMeera Securities is only a messenger with no obligation to the exchange
  2. BThe clearing corporation has a direct contract with Arjun for settlement
  3. CMeera Securities is responsible to the clearing corporation for settling the trade, while the client's obligation runs to the brokerCorrect
  4. DArjun must pay funds directly to the seller's broker

Explanation

Clients have no direct relationship with the clearing corporation. The clearing member, through which the broker settles, is liable to the clearing corporation for obligations, and the client's obligation is to the broker. Options claiming direct client dealings with the clearing corporation or seller's broker are wrong, and a broker is not a mere messenger.

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