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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

Which of the following entities acts as the legal counterparty to every trade novated to it on an Indian stock exchange, thereby guaranteeing settlement to clearing members?

The clearing corporation of the exchange is the legal counterparty to every novated trade. By stepping in as buyer to every seller and seller to every buyer, it guarantees settlement to clearing members, removing counterparty risk between the original trading parties.

  1. AThe depository participant of the buyer
  2. BThe clearing corporation of the exchangeCorrect
  3. CThe stock exchange's listing department
  4. DThe registrar and transfer agent of the issuer

Explanation

Through novation, the clearing corporation becomes the buyer to every seller and the seller to every buyer, and it guarantees settlement of trades. A depository participant only holds and transfers securities in demat form. The listing department and RTAs have no role in guaranteeing trades.

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