NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market
Which of the following entities is mainly responsible for guaranteeing the settlement of trades executed on a recognised stock exchange by becoming the central counterparty?
The clearing corporation guarantees settlement of exchange-traded trades by acting as the central counterparty, stepping between buyer and seller through novation. It is backed by margins and a settlement guarantee fund. A depository participant merely offers demat services, so it does not give this guarantee.
- ADepository participant
- BClearing corporationCorrect
- CMerchant banker
- DCredit rating agency
Explanation
The clearing corporation acts as the central counterparty through novation, assuming the obligations of both buyer and seller and guaranteeing settlement, typically supported by a settlement guarantee fund. A depository participant only serves as an agent of the depository for investors, so it is wrong.
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