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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process

Which of the following best describes the purpose of the Settlement Guarantee Fund (Core SGF) maintained by a clearing corporation?

The Core Settlement Guarantee Fund is meant to cover losses from a clearing member's default so that trades still get settled. It backs the clearing corporation's settlement guarantee and is not used for brokerage, technology or compensating investors for price declines.

  1. ATo pay brokerage to trading members during market holidays
  2. BTo fund exchange infrastructure and technology upgrades
  3. CTo cover losses arising from a clearing member's default so that settlement of trades is completedCorrect
  4. DTo compensate investors for losses caused by market price falls

Explanation

The Core SGF is a pool of resources maintained by the clearing corporation for each segment to meet settlement shortfalls arising from a clearing member default, ensuring that the guarantee of settlement is honoured. It is not meant for infrastructure spending, brokerage or compensating market-risk losses.

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