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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment

Under the SEBI framework for equity derivatives in India, which entity is responsible for guaranteeing the settlement of trades executed on a stock exchange's derivatives segment?

The clearing corporation guarantees settlement of derivatives trades. Through novation it becomes the central counterparty, acting as seller to every buyer and buyer to every seller, which removes counterparty risk between the original trading parties.

  1. AThe clearing corporation, which acts as legal counterparty to every tradeCorrect
  2. BThe trading member who executed the order
  3. CThe depository participant of the buyer
  4. DThe stock exchange's listing department

Explanation

Through novation, the clearing corporation becomes the buyer to every seller and seller to every buyer, and guarantees settlement. Trading members and depository participants do not provide this guarantee, and the listing department deals with issuer listings.

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