NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
In an exchange-traded equity futures contract, the daily settlement of gains and losses between the buyer and seller through the clearing corporation is known as:
The daily settlement of futures gains and losses through the clearing corporation is called mark-to-market settlement. Positions are revalued at the daily settlement price and the difference is paid or collected each day, which limits the build-up of credit risk between counterparties.
- AMark-to-market settlementCorrect
- BPhysical delivery
- CRolling over
- DNovation
Explanation
Futures positions are revalued every day at the settlement price, and the profit or loss is credited or debited to member accounts through the clearing corporation. This is mark-to-market. Novation refers to the clearing corporation becoming counterparty to trades, not to daily settlement of gains and losses.
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