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NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Securities Market

In the Indian securities market, which of the following best describes the function of a stock exchange's clearing corporation?

A clearing corporation acts as the central counterparty to trades executed on the exchange, taking on the obligations of both buyer and seller through novation, and thereby guarantees settlement. Holding securities in demat form, rating issuers and managing public issues are functions of other market institutions.

  1. AActing as the central counterparty that guarantees settlement of tradesCorrect
  2. BIssuing shares to the public on behalf of companies
  3. CMaintaining investors' securities in electronic form
  4. DRating the creditworthiness of listed companies

Explanation

A clearing corporation becomes the central counterparty to trades through novation, so it guarantees settlement. Holding securities electronically is the work of depositories, and ratings are provided by credit rating agencies. Issuing shares is done by the issuer through merchant bankers and registrars.

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