NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Settlement Process
Who guarantees the settlement of trades executed on a recognised stock exchange in India, so that the buyer or seller is protected against counterparty default after novation?
The clearing corporation guarantees settlement. After novation it becomes the counterparty to every trade, and it uses margins and the Settlement Guarantee Fund to ensure completion even if one member defaults.
- AThe depository participant of the seller
- BThe clearing corporation, through its settlement guarantee mechanismCorrect
- CThe trading member who executed the order, solely
- DSEBI directly from its own funds
Explanation
After novation, the clearing corporation becomes the central counterparty to both sides and guarantees settlement, backed by the Settlement Guarantee Fund and margins. Neither the DP, nor the trading member alone, nor SEBI's funds provide the guarantee.
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