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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Trading Mechanism

In the Indian equity derivatives market, which of the following best describes the role of a Trading Member (TM) who is not a clearing member?

A trading member that is not a clearing member must route its trades through a clearing member for clearing and settlement, because only clearing members have direct settlement obligations with the clearing corporation. The trading member only has trading rights on the exchange.

  1. ASettles trades directly with the clearing corporation in its own name
  2. BMust clear and settle trades through a Clearing Member with whom it has an arrangementCorrect
  3. CIs exempt from registration with the exchange
  4. DCan only trade on behalf of the exchange

Explanation

A trading member who is not a clearing member cannot settle trades directly with the clearing corporation. Trades are cleared and settled through a clearing member (trading-cum-clearing, professional or self-clearing) with whom the TM has an arrangement. Direct settlement is a privilege of clearing members only.

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