NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
In the clearing process for exchange-traded cash market trades in India, which entity acts as the central counterparty by becoming the buyer to every seller and the seller to every buyer?
The clearing corporation acts as the central counterparty. Through novation it becomes the buyer to every seller and the seller to every buyer, guaranteeing settlement and removing the counterparty risk between the original trading parties.
- AThe depository participant of the investor
- BThe clearing corporation of the exchangeCorrect
- CThe trading member's compliance officer
- DThe stock exchange's listing department
Explanation
Through novation, the clearing corporation interposes itself between the original parties and becomes the legal counterparty to each. This guarantees settlement of trades. A depository participant only handles securities accounts, and the other roles do not guarantee trades.
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