NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
In the cash segment, if a seller's clearing member fails to deliver securities by the pay-in time and the shortage is auctioned, the auction is conducted mainly to:
The auction exists to procure securities for the buyer who did not receive full delivery because of the seller's shortage. The clearing corporation invites offers from other sellers so the buyer's obligation is met, rather than cancelling the trade or penalising the buyer.
- APenalise the buyer for delayed payment
- BArrange securities for the buyer who is short of deliveryCorrect
- CReduce the margin of the defaulting member
- DCancel the original trade without any settlement
Explanation
When securities are short-delivered, the clearing corporation holds an auction so that other sellers offer the securities, and the buyer gets delivery. The trade is not cancelled, and the auction is not a penalty on the buyer or a margin reduction.
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