NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
Which entity acts as the legal counterparty to every trade by becoming the buyer to every seller and the seller to every buyer after novation in the Indian exchange-traded market?
The clearing corporation becomes the central counterparty through novation, acting as seller to every buyer and buyer to every seller. This substitutes its guarantee for the original parties' counterparty risk, which brokers, depository participants or custodians do not provide.
- AThe depository participant of the buyer
- BThe clearing corporationCorrect
- CThe stock broker of the seller
- DThe custodian of the investor
Explanation
Through novation, the clearing corporation interposes itself between the original parties and guarantees settlement. Brokers, depository participants and custodians only facilitate trading, custody or account services. Hence the clearing corporation is the central counterparty.
Did you get it right without looking?
One question tells you little. A timed set on Settlement Process shows your real accuracy, how long you take and where you lose marks.
More Settlement Process questions
- Which entity guarantees the settlement of trades executed on a recognised stock exchange in India, even if a counterparty clearing member de…
- A client sells shares held in her demat account through a broker. For the delivery to be settled properly, which action must occur by the pa…
- Broker A has a net pay-in obligation of ₹8 lakh in funds to the clearing corporation for a settlement. The broker has funds shortfall of ₹1 …
- A broker's client sells 500 shares in a T+1 settlement but the shares are held in the client's demat account with a different depository par…
- If a short-delivered security cannot be purchased in the auction, what is the usual result for the buyer?
- Which of the following best describes the pay-in in the settlement process?