NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Understanding Derivatives
Which statement best describes the role of the clearing corporation in exchange-traded futures in India?
The clearing corporation becomes the counterparty to every trade through novation, acting as buyer to every seller and seller to every buyer. This guarantees settlement and removes counterparty default risk between traders, while order matching remains the exchange's trading system function.
- AIt acts as the counterparty to every trade through novation, guaranteeing settlementCorrect
- BIt sets the share price for every stock underlying the contract
- CIt lends money to traders to meet margin requirements
- DIt matches buy and sell orders on the trading screen
Explanation
Through novation the clearing corporation becomes the buyer to every seller and the seller to every buyer, removing counterparty risk and guaranteeing settlement. Order matching is done by the exchange trading system. It does not set prices or lend margin funds.
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