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 by guaranteeing settlement after novation in the Indian cash market?
The clearing corporation is the legal counterparty to every trade. Through novation it becomes the buyer to every seller and the seller to every buyer, and it guarantees settlement. Depository participants, brokers and merchant bankers do not take on this guarantee role.
- ADepository participant
- BClearing corporationCorrect
- CStock broker
- DMerchant banker
Explanation
After trades are executed, the clearing corporation interposes itself between the buyer and the seller through novation and guarantees settlement. A depository participant only provides demat account services, a broker executes orders, and a merchant banker handles issue management.
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