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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Operational Aspects of Investment Management

Mr. Iyer's portfolio manager buys 1,000 shares at Rs 200 on the exchange. Trade is settled on T+1 basis. Which statement best describes the role of the clearing corporation in this settlement?

The clearing corporation acts as the central counterparty through novation, becoming seller to every buyer and buyer to every seller, and it guarantees settlement of trades. It does not choose investments, fix brokerage or issue shares to the buyer.

  1. AIt acts as the counterparty to both buyer and seller through novation, guaranteeing settlementCorrect
  2. BIt selects the shares for the client's portfolio
  3. CIt sets the brokerage payable by the client
  4. DIt issues the shares to the buyer directly as the company

Explanation

The clearing corporation becomes the central counterparty by novation, interposing itself between buyer and seller and guaranteeing settlement. Selecting shares, brokerage and issuing shares are not its functions.

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