NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Securities Market
Which entity in the Indian securities market guarantees the settlement of trades executed on a stock exchange by acting as the counterparty to both buyer and seller through novation?
The clearing corporation guarantees settlement of exchange-traded trades. Through novation it becomes the central counterparty, acting as seller to every buyer and buyer to every seller, which removes counterparty risk. Depository participants, registrars and merchant bankers do not perform this guarantee function.
- ADepository participant
- BClearing corporationCorrect
- CRegistrar and transfer agent
- DMerchant banker
Explanation
A clearing corporation interposes itself between buyer and seller through novation, becoming the buyer to every seller and the seller to every buyer. This is how it guarantees settlement. Depository participants only provide demat services, RTAs maintain records, and merchant bankers manage issues.
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