NISM Certifications · NISM-Series-VIII: Equity Derivatives · Legal and Regulatory Environment
Which of the following statements about the role of the clearing corporation in the regulatory framework for equity derivatives is correct?
The clearing corporation becomes the central counterparty by novation, acting as buyer to every seller and seller to every buyer. It guarantees settlement and manages risk through margins and a settlement guarantee fund, with participation only via clearing members.
- AIt acts as legal counterparty to trades through novation, guaranteeing settlementCorrect
- BIt sets the trading hours for brokers but takes no part in risk management
- CIt lets clients deal directly with it without any clearing member
- DIt guarantees only the trades of the clearing members who pay no margins
Explanation
After novation, the clearing corporation becomes buyer to every seller and seller to every buyer and runs the risk management and settlement guarantee fund. Clients access it only through clearing members, and members pay margins.
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