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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

Which of the following best describes the role of the settlement guarantee fund (core SGF) maintained by a clearing corporation?

The settlement guarantee fund is used to meet shortfalls caused by a clearing member's default, so that the clearing corporation can still complete settlement of trades. It protects the guarantee of settlement, not investors' ordinary market losses or operating expenses.

  1. AIt pays brokerage to trading members on default
  2. BIt is used to meet shortfalls arising from a clearing member's default so that settlement of trades is guaranteedCorrect
  3. CIt funds listing fees of new derivative contracts
  4. DIt compensates investors for market losses due to price falls

Explanation

The core SGF is a fund maintained by the clearing corporation to cover losses from clearing member defaults, supporting the settlement guarantee. It does not cover market losses of investors, brokerage or listing costs.

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