NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Clearing Process
Which of the following is the primary purpose of the clearing corporation maintaining a Settlement Guarantee Fund (Core SGF)?
The Settlement Guarantee Fund exists to ensure that settlement is completed when a clearing member defaults. It is a pooled corpus used to meet the defaulter's shortfall so that obligations to other members are honoured, not to cover market price losses.
- ATo pay brokerage to members
- BTo fund the exchange's technology upgrades
- CTo guarantee settlement of trades when a member defaults on its obligationsCorrect
- DTo compensate investors for losses on market price declines
Explanation
The Core Settlement Guarantee Fund is a corpus built from contributions by the clearing corporation, exchange and members. It is used to complete settlement if a clearing member defaults. It is not meant for brokerage payments, technology spending or covering ordinary market losses.
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