NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets
Which entity acts as the central counterparty that guarantees settlement of trades executed on a stock exchange in India?
The clearing corporation acts as the central counterparty and guarantees settlement of exchange-traded trades. It steps in between buyer and seller through novation and is backed by a settlement guarantee fund. Depository participants, registrars and merchant bankers do not perform this guarantee function.
- AClearing corporationCorrect
- BDepository participant
- CRegistrar and transfer agent
- DMerchant banker
Explanation
The clearing corporation becomes the counterparty to every trade through novation and guarantees settlement, supported by a settlement guarantee fund. Depository participants only provide demat services, and the other entities do not guarantee trades.
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