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CS Executive · Capital Market and Securities Laws · Basics of Capital Market

Rohan places an order to buy 100 shares of an Indian company through his broker. Under the present Indian market framework, which entity guarantees the settlement of this trade by acting as a counterparty to both buyer and seller after trade matching?

The clearing corporation of the exchange guarantees settlement. After trades are matched, it steps in as central counterparty to both buyer and seller, which removes counterparty risk. Depository participants and registrars only handle demat holdings or issuer records and do not guarantee trade settlement.

  1. AThe depository participant of the buyer
  2. BThe clearing corporation of the exchangeCorrect
  3. CThe listed company whose shares are traded
  4. DThe registrar and transfer agent

Explanation

The clearing corporation novates the trade, becoming the central counterparty to both sides and guaranteeing settlement. A depository participant only holds and transfers securities in demat accounts. The RTA maintains issuer records, so it does not guarantee settlement.

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