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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

In the Indian securities market, which entity acts as the legal counterparty to every trade through novation once the trade is accepted for clearing on a recognised stock exchange?

The clearing corporation is the legal counterparty to every accepted trade because of novation. It steps in as seller to the buyer and buyer to the seller, guaranteeing settlement and removing counterparty risk between the original trading members.

  1. AThe stock broker who executed the trade
  2. BThe clearing corporationCorrect
  3. CThe depository participant of the buyer
  4. DThe registrar and transfer agent

Explanation

Through novation, the clearing corporation becomes the buyer to every seller and the seller to every buyer, guaranteeing settlement. The broker remains the client's agent but is not the central counterparty. Depository participants and RTAs only handle holdings and records, not trade guarantee.

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