NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
Which of the following best describes the role of the clearing corporation's settlement guarantee fund (core SGF) in the risk management framework?
The settlement guarantee fund is maintained by the clearing corporation to absorb losses arising when a clearing member defaults, allowing settlement to be completed. It is not meant to compensate investors for price losses or to pay dividends or expenses.
- AIt is a fund maintained to meet losses arising from a member's default so that settlement can be completedCorrect
- BIt is used to pay dividends to listed companies' shareholders
- CIt is a fund to reimburse all trading losses suffered by investors due to price falls
- DIt is a fund used to pay brokers' salaries
Explanation
The settlement guarantee fund exists to absorb losses from member defaults so that trades are still settled and market integrity is maintained. It does not compensate for market losses, pay dividends or fund broker expenses.
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