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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

Which statement about the Core Settlement Guarantee Fund (Core SGF) maintained by a clearing corporation is correct?

The Core SGF is maintained by the clearing corporation for each segment to guarantee settlement. It is used in a waterfall only after the defaulting member's margins, deposits and other prescribed resources are exhausted. It is not an investor compensation fund and covers derivatives too.

  1. AIt is maintained for each segment to guarantee settlement of trades and is used in a defined waterfall after a defaulter's own resources are exhaustedCorrect
  2. BIt is a fund contributed by investors to compensate for losses caused by broker fraud
  3. CIt is maintained only for the cash segment and is not applicable to derivatives
  4. DIt is used before the defaulting member's margins and deposits are utilised

Explanation

Core SGF is segment-wise and guarantees settlement. In the default waterfall, the defaulter's margins, deposits and own contributions are used first, then clearing corporation resources and Core SGF. The investor compensation fund is the Investor Protection Fund, a different concept.

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