NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market
Which entity acts as the legal counterparty to every trade accepted for clearing on a recognised stock exchange, thereby guaranteeing settlement to both buyer and seller?
The clearing corporation is the legal counterparty to every trade accepted for clearing. Through novation it becomes the seller to each buyer and the buyer to each seller, guaranteeing settlement and removing bilateral counterparty risk between the original trading members.
- AThe depository participant of the buyer
- BThe clearing corporationCorrect
- CThe research analyst registered with SEBI
- DThe registrar and transfer agent of the issuer
Explanation
Through novation, the clearing corporation becomes the buyer to every seller and the seller to every buyer. This removes bilateral counterparty risk. Depository participants only handle demat account operations, not trade guarantee.
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