NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets
In the Indian securities market, which entity is responsible for guaranteeing the settlement of trades executed on a stock exchange, by acting as the counterparty to both the buyer and the seller?
The clearing corporation guarantees settlement of exchange trades. Through novation it becomes the buyer to every seller and the seller to every buyer, removing counterparty risk. Brokers, depository participants and registrars do not provide this guarantee.
- ADepository participant
- BClearing corporationCorrect
- CRegistrar and transfer agent
- DStock broker
Explanation
After a trade is executed, the clearing corporation becomes the central counterparty through novation, so it guarantees settlement. A depository participant only holds securities for investors, an RTA maintains records for issuers, and a broker only intermediates trades without guaranteeing settlement.
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