NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
In the Indian equity cash market, which entity acts as the central counterparty by becoming the buyer to every seller and the seller to every buyer after trade novation?
The clearing corporation acts as the central counterparty. After novation it becomes the buyer to every seller and the seller to every buyer, guaranteeing settlement of trades and removing the counterparty risk that the original trading parties would otherwise carry.
- AThe clearing corporation of the exchangeCorrect
- BThe stock exchange trading member
- CThe depository participant
- DThe custodian of the client
Explanation
Through novation, the clearing corporation interposes itself between the original parties and guarantees settlement. Trading members, depository participants and custodians do not assume the counterparty role.
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