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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market

Which one of the following statements about the relationship between a stock exchange, a clearing corporation and a depository in the settlement of an equity trade is most accurate?

The exchange matches and executes the trade, the clearing corporation works out obligations and guarantees settlement, and the depository transfers securities by book entry between demat accounts. Each institution has a distinct role, and the alternatives mix these functions up.

  1. AThe exchange matches the trade, the clearing corporation determines obligations and guarantees settlement, and the depository effects the transfer of securities by book entryCorrect
  2. BThe depository matches the trade, the exchange guarantees settlement, and the clearing corporation transfers securities by book entry
  3. CThe clearing corporation matches the trade, the depository determines funds obligations, and the exchange transfers securities
  4. DThe exchange both guarantees settlement and transfers securities, while the depository only keeps records of share certificates

Explanation

Exchange: trade matching and execution. Clearing corporation: computes obligations, novates and guarantees settlement. Depository: book-entry transfer of securities between demat accounts. The other options mix up these roles.

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