Clearing Process

What is the role of a Clearing Corporation in stock market transactions?

To act as a mediator between buyers and sellers
To provide trading recommendations to investors
To ensure that members meet their fund/security obligations and manage risk
To regulate stock market operations

What is the process called when the Clearing Corporation becomes the buyer to every seller and seller to every buyer to ensure settlement in case of default?

Clearing and Settlement
Counterparty Agreement
Novation
Risk Management

In a multi-lateral netting scenario, what is the primary challenge when a default occurs?

Identifying the original counterparty
Managing market volatility
Unwinding the trade
Calculating margin requirements

What is the primary purpose of a robust risk management system, including efficient margining, in a Clearing Corporation?

To increase trading volumes
To lower transaction costs
To ensure Clearing Corporation profitability
To cover potential losses in case of default

What is the settlement cycle in India for the capital market segment?

T+1 days
T+3 days
T+2 days
T+5 days

What role does a Clearing Corporation play as a central counterparty?

It facilitates trade execution
It monitors market participants
It assumes the role of the counterparty in every transaction
It provides trading recommendations to investors

What is the primary benefit of inter-operability among Clearing Corporations in India?

Reducing the number of market participants
Streamlining the regulatory framework
Efficient allocation of capital and cost savings for market participants
Expanding the trading hours

What does a clearing bank do in the clearing and settlement process?

Acts as a mediator between clearing members and depositories
Facilitates the trading of securities
Manages the risk associated with clearing and settlement
Handles the transfer of funds during clearing and settlement

Which entity helps in the maintenance of ownership and transfer records of securities in electronic form in the depository system?

Stock Exchange
Clearing Corporation
Depository
Custodian

What are Depository Participants (DPs) responsible for in the depository system?

Acting as intermediaries between clearing banks and clearing members
Facilitating trading in the stock market
Holding securities in electronic form and enabling their transfer
Managing risk in the clearing and settlement process

What is the key requirement for debiting a beneficiary account when transferring securities in the depository system?

Approval from the stock exchange
A completed 'Delivery Instruction Slip' (DIS)
A written agreement between buyer and seller
Consent from the Clearing Corporation

How are securities transferred from a seller’s account to a broker’s pool account in the depository system?

Through a delivery-in instruction
Based on market price fluctuations
By a transfer agent
By a clearing agency based on a delivery out instruction

In the context of clearing and settlement, what is the role of multilateral netting?

Determining the cost of securities
Calculating brokerage fees
Determining the net settlement obligations of clearing members
Managing market volatility

What is the primary purpose of clearing in the stock market?

Facilitating trading activities
Generating trading recommendations
Determining the ownership of securities
Determining and discharging obligations

Which entity guarantees that all contracts traded on a stock exchange will be honoured in the clearing process?

Stock Exchange
Broker
Clearing Corporation
Custodian

What is the primary purpose of balancing/netting of client accounts within a broker’s firm in the clearing process?

To determine market prices
To consolidate ownership of securities
To calculate brokerage fees
To facilitate final pay-in/pay-out of securities/funds

What is the primary objective of broker netting within the Exchange?

To determine market prices
To calculate taxes on trading activities
To facilitate multilateral netting
To inform members of trading transactions

What is the role of a clearing agency (clearing corporation/clearing house) in the clearing process?

To execute trades on behalf of investors
To guarantee the honouring of all traded contracts
To regulate stock exchanges
To provide investment advice

How does the clearing agency determine net settlement obligations for clearing members?

Through bilateral netting
Through multilateral netting
Through individual settlement agreements
Through direct exchange settlement

What is the two-way process involved in settlement?

Buying and selling of securities
Transfer of funds and securities on the settlement date
Agreement on trade prices
Calculation of transaction fees

In the context of clearing and settlement, what is a “bad delivery”?

Delivery of securities that are damaged or in poor condition
Delivery of securities that exceed the required quantity
Delivery of securities with incorrect documentation
Delivery of securities that meet all requirements

When does the paying member need to ensure that clear funds are available in their clearing bank settlement account?

On the trade date
Before the custodial confirmation
On the settlement date
On T+2

What role do custodians play in the clearing process for institutional clients like Mutual Funds and Insurance Companies?

They act as trading members
They act as clearing members
They act as brokers
They provide investment advice

In the context of derivatives clearing, what is “Mark-to-Market settlement”?

The settlement of a derivative contract at its original trade price
The daily adjustment of contract values based on market prices
The settlement of a derivative contract at maturity
The settlement of a derivative contract using physical delivery

How are derivatives contracts typically settled, either cash or physically?

Only through cash settlement
Only through physical settlement
Through both cash and physical settlement
Through direct exchange settlement

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