NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to Securities Broking Operations
Which entity acts as the guarantor of settlement of trades executed on the exchange by becoming the counterparty to both buyer and seller?
The clearing corporation guarantees settlement because, through novation, it becomes the counterparty to both the buyer and the seller. Brokers, depository participants and registrars do not assume this guarantee role in exchange-traded trades.
- AThe depository participant
- BThe clearing corporationCorrect
- CThe stock broker
- DThe registrar and transfer agent
Explanation
Through novation the clearing corporation becomes the buyer to every seller and the seller to every buyer, guaranteeing settlement. A broker or depository participant does not take this role and an RTA maintains issuer records.
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