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CS Executive · Capital Market and Securities Laws · Secondary Market in India

Meera, a broker, is told by a client that he wants to settle trades without handling physical certificates, and that the exchange guarantees completion of trades. Which pair of entities mainly provide dematerialised holding and trade settlement guarantee in the secondary market?

The depository and the clearing corporation provide these functions. The depository holds securities in electronic form through depository participants, while the clearing corporation guarantees and settles trades, taking on counterparty risk. Other intermediaries listed mainly serve primary issues or advisory roles.

  1. ADepository and clearing corporationCorrect
  2. BRegistrar to an issue and merchant banker
  3. CCredit rating agency and debenture trustee
  4. DPortfolio manager and investment adviser

Explanation

A depository holds securities in electronic form through depository participants, removing physical certificates. A clearing corporation novates trades and guarantees settlement, managing risk through margins and a settlement guarantee fund. Registrars and merchant bankers work mainly in primary issues, so option B is wrong.

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