NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment
Which of the following best describes the role of a Clearing Corporation in the regulatory structure of the derivatives segment?
A clearing corporation acts as the legal counterparty to every trade through novation, becoming seller to every buyer and buyer to every seller, and guarantees settlement. It does not license brokers or frame regulations, which are SEBI functions.
- AIt acts as legal counterparty to trades through novation, guaranteeing settlementCorrect
- BIt only publishes daily closing prices
- CIt issues licences to stock brokers
- DIt frames SEBI regulations for derivatives
Explanation
The clearing corporation becomes the central counterparty by novation, interposing itself between buyer and seller and guaranteeing settlement. Licensing and regulation-making belong to SEBI, not the clearing corporation.
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