NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
In the Indian securities 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 central counterparty. After novation it becomes the buyer to every seller and seller to every buyer, guaranteeing settlement of trades, which removes bilateral counterparty risk between the original trading members.
- AThe clearing corporationCorrect
- BThe depository participant
- CThe stock broker's back office
- DThe custodian of the buyer
Explanation
Through novation, the clearing corporation interposes itself between the original parties and guarantees settlement. A depository participant only handles demat accounts, and a broker's back office or custodian does not take on counterparty risk for the market.
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