NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
Which entity acts as the legal counterparty to every trade through novation after trades are accepted for clearing on an Indian stock exchange?
The clearing corporation becomes the central counterparty to all trades through novation, acting as buyer to every seller and seller to every buyer. This lets it guarantee settlement and manage counterparty risk, whereas brokers, depository participants and registrars do not assume this role.
- AThe depository participant of the buyer
- BThe clearing corporationCorrect
- CThe stock broker of the seller
- 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. Brokers and depository participants only facilitate trading and holding. A registrar and transfer agent maintains issuer records and has no counterparty role.
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