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 cleared through it, guaranteeing settlement by becoming the buyer to every seller and the seller to every buyer?
The clearing corporation is the legal counterparty to every cleared trade. By novation it becomes buyer to every seller and seller to every buyer, which lets it guarantee settlement. Depository participants, brokers and registrars do not take on this central counterparty role.
- ADepository Participant
- BClearing corporationCorrect
- CStock broker
- DRegistrar and transfer agent
Explanation
Through novation, the clearing corporation interposes itself between the original trading parties and becomes the central counterparty. This is how it guarantees settlement of trades. A depository participant only provides demat services, a broker only executes trades, and an RTA maintains issuer records.
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