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 maintained by a clearing corporation?
The settlement guarantee fund is meant to cover losses when a clearing member defaults, so that the clearing corporation can still complete settlement and honour obligations to non-defaulting members. It is funded by members and the clearing corporation and acts as a safety net.
- ATo pay brokerage to trading members
- BTo meet shortfalls when a clearing member defaults, so that settlement obligations to other members are honouredCorrect
- CTo finance the listing of new companies
- DTo pay dividends to investors of listed companies
Explanation
The fund is built from contributions of members and the clearing corporation and is used to cover losses from defaults so settlement continues smoothly. It is not used for brokerage, listing or dividends.
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