NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
In the clearing process of an Indian stock exchange, which entity interposes itself as the legal counterparty to every trade, becoming the buyer to every seller and the seller to every buyer?
The clearing corporation is the entity that becomes buyer to every seller and seller to every buyer. Through novation it acts as central counterparty and guarantees settlement, removing counterparty risk between the original trading parties.
- ADepository participant
- BClearing corporationCorrect
- CTrading member
- DCustodian
Explanation
Through novation, the clearing corporation becomes the central counterparty to trades admitted for settlement. This guarantees settlement and removes bilateral counterparty risk between members. A depository participant only handles demat accounts, a trading member is a market participant, and a custodian holds securities for institutions.
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