Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives

In the Indian exchange-traded equity derivatives market, which of the following best describes the role of the clearing corporation once a futures trade is executed?

The clearing corporation acts as the buyer to every seller and the seller to every buyer through novation. This guarantees settlement and removes direct counterparty risk between traders. It does not set prices, finance margins or choose the underlying stocks.

  1. AIt becomes the buyer to every seller and the seller to every buyer through novationCorrect
  2. BIt fixes the price at which the futures contract will trade on the next day
  3. CIt lends money to the buyer so that margin need not be paid
  4. DIt decides whether the underlying stock will be included in the contract

Explanation

After a trade is executed, the clearing corporation steps in through novation and becomes the counterparty to both sides. This removes bilateral counterparty risk. It does not set trading prices or lend margin money, and inclusion of stocks is decided by the exchange under SEBI criteria.

Did you get it right without looking?

One question tells you little. A timed set on Understanding Derivatives shows your real accuracy, how long you take and where you lose marks.

Practise Understanding DerivativesFree diagnostic mock

More Understanding Derivatives questions