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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment

Which of the following is a condition that an exchange's clearing corporation must satisfy for the equity derivatives segment, as per the regulatory framework?

The clearing corporation must interpose itself as the legal counterparty through novation and maintain a settlement guarantee fund. This assures performance of trades and covers member defaults. It does not set trading prices or allow bilateral off-system settlement of exchange-traded derivatives.

  1. AIt must act as legal counterparty to trades through novation and maintain a settlement guarantee fundCorrect
  2. BIt must set the price at which derivatives trade each day
  3. CIt must permit members to settle bilaterally outside the clearing system
  4. DIt must be owned wholly by the trading members

Explanation

The clearing corporation becomes the counterparty to every trade through novation, guaranteeing settlement, and maintains a Settlement Guarantee Fund to cover defaults. It does not fix trade prices, bilateral settlement bypasses it, and ownership by trading members alone is not required.

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