Clearing, Settlement and Risk Management
16 questions. Each answer is explained.
Question 1 of 10Practice · Series VIII — Equity Derivatives
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Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 13 of 100 marks (13%) |
Source: Unit 7: Introduction to Clearing and Settlement system
NISM Series VIII Equity Derivatives
Exam rules read on NISM's site on 3 October 2026. Test objectives in force from 1 May 2022. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 16 questions on Clearing, Settlement and Risk Management, with answers
Q1What is a central function of a clearing corporation in an exchange-traded derivatives market?
Option A. Promise every trader a profit, whichever way the market moves
Why it is wrong: Settlement guarantee is not a guarantee of trading profit.
Option B. Act as central counterparty and manage clearing and settlement risk — Correct answer
Option C. Set the directional trading view and choose positions for clients
Why it is wrong: Clients decide their own trading positions.
Option D. Replace the securities regulator and take over its role in the market
Why it is wrong: The clearing corporation operates within the regulatory framework. It does not replace SEBI.
Answer: B. The clearing corporation interposes itself in the post-trade process, manages margins and settlement obligations, and supports settlement certainty through its risk-management and guarantee framework. It does not guarantee investment profits or replace the regulator. Remember: Clearing corporations manage counterparty/settlement risk, not market-direction risk for traders.
Hint, shown before you answer in practice mode: Common mistake: Confusing settlement guarantee with profit guarantee.
VIII-064easyconceptual
Q2NSE Clearing’s SPAN system is best described as:
Option A. A guarantee that a margined position cannot lose more than the margin collected
Why it is wrong: Market losses can exceed the margin amount collected.
Option B. A fixed brokerage schedule used by every trading member
Why it is wrong: Brokerage is a commercial trading-member charge, not SPAN.
Option C. A tax calculation method for F&O turnover
Why it is wrong: SPAN is unrelated to income-tax turnover calculation.
Option D. A portfolio-based risk margining system that evaluates potential loss under risk scenarios — Correct answer
Answer: D. SPAN (Standard Portfolio Analysis of Risk) is a portfolio-based margining framework. It assesses risk across positions under specified price/volatility scenarios to determine margin requirements. Margin is a risk-control mechanism, not a cap on possible trading losses. Remember: SPAN estimates portfolio risk for margin purposes. It does not limit actual P&L.
Hint, shown before you answer in practice mode: Common mistake: Assuming the margin amount equals maximum possible loss.
VIII-065mediumconceptual
Q3Current NSE Clearing material levies an Extreme Loss Margin (ELM) in addition to SPAN-based requirements. What is the main purpose of this additional margin?
Option A. Replace the daily mark-to-market settlement of all futures permanently
Why it is wrong: Futures MTM settlement remains part of the clearing framework.
Option B. Pay the option premium to the buyer of the option
Why it is wrong: Option premium settlement is a separate obligation.
Option C. Add a cushion for extreme losses beyond ordinary SPAN scanning risk — Correct answer
Option D. Fix the underlying security’s market price during extreme market moves
Why it is wrong: Margins do not control or fix market prices.
Answer: C. Extreme Loss Margin is an additional risk buffer layered on top of the core portfolio risk framework. It is intended to provide protection against extreme or tail-risk moves beyond ordinary scanning assumptions. Historical material and some reports may also use “exposure margin” terminology in this context. Remember: SPAN addresses modeled portfolio risk. ELM adds another cushion for extreme moves.
Hint, shown before you answer in practice mode: Common mistake: Treating every margin component as interchangeable or assuming ELM is an option premium.
VIII-066mediumconceptual
Q4Assume a futures contract has a notional value of ₹17,00,000 and the total margin requirement specified in the question is 14% of notional value. How much margin is required?
Option A. ₹1,19,000
Why it is wrong: ₹1,19,000 is 7% of notional, only half the stated rate.
Option B. ₹14,00,000
Why it is wrong: This confuses a percentage margin requirement with most of the notional amount.
Option C. ₹3,40,000
Why it is wrong: ₹3,40,000 is 20% of the contract value.
Option D. ₹2,38,000 — Correct answer
Answer: D. Margin = ₹17,00,000 × 14% = ₹2,38,000. Remember: When the question gives a combined margin percentage, multiply it by contract notional. Do not infer a live exchange margin rate.
Hint, shown before you answer in practice mode: Common mistake: Treating a hypothetical margin percentage as a permanent exchange rule.
VIII-067mediumnumerical
Q5NSE Clearing implemented the requirement for upfront collection of net option premium payable at the client level from 10 February 2025. What does this mean for an option buyer with net premium payable?
Option A. The net premium payable must be collected upfront from the client — Correct answer
Option B. The buyer may always defer the premium until option expiry
Why it is wrong: The rule was introduced specifically to require upfront collection rather than routine deferral.
Option C. Only the option seller must fund the buyer’s premium upfront
Why it is wrong: The buyer’s premium obligation is not shifted to the seller as a funding requirement.
Option D. The premium is waived if the option is out of the money
Why it is wrong: Moneyness does not waive the premium agreed when the option is bought.
Answer: A. NSE Clearing Circular NCL/CMPT/66046 moved the implementation date to 10 February 2025. From that date, net options premium payable at client level is included in the upfront collection requirement. The premium is not deferred merely because the option has time remaining or is OTM. Remember: Option buyers must fund net premium payable upfront under the current requirement.
Hint, shown before you answer in practice mode: Common mistake: Using the initially announced 1 February 2025 date without checking the later NSE Clearing implementation circular.
VIII-068mediumregulatory
Q6On the expiry day of an index option contract, the additional Extreme Loss Margin introduced for short options is:
Option A. 2% on short option contracts due to expire that day — Correct answer
Option B. 1% only on options opened after noon
Why it is wrong: It is not restricted to positions opened after a particular intraday time.
Option C. 0.5% only on long options
Why it is wrong: The measure targets short options, not long options.
Option D. 5% on every futures and options position regardless of expiry
Why it is wrong: The rule is not a blanket 5% levy on every derivative position.
Answer: A. SEBI’s strengthened equity-index-derivatives framework requires an additional ELM of 2% on short option contracts on the day those options expire. It applies to open short options at the start of the day as well as short positions initiated during that day that expire that day. Remember: Expiry-day short options carry an additional 2% ELM under the strengthened tail-risk framework.
Hint, shown before you answer in practice mode: Common mistake: Applying the additional margin to every option maturity or to long options.
VIII-069mediumregulatory
Q7How are open individual-stock derivative positions at expiry on NSE generally settled under the current delivery framework?
Option A. By conversion into a mutual fund unit
Why it is wrong: There is no conversion into mutual fund units.
Option B. Always by cash difference only, exactly like an index
Why it is wrong: Cash-only settlement is characteristic of index derivatives, not the current stock-derivatives delivery framework.
Option C. Through physical/delivery settlement in the underlying shares — Correct answer
Option D. By cancelling the contract without any settlement obligation
Why it is wrong: Open expiry obligations do not simply disappear without settlement.
Answer: C. NSE’s current individual-securities specifications state that stock options are physically settled, and NSE Clearing describes delivery settlement for stock derivatives. This differs from index derivatives, where the index itself is not physically deliverable and settlement is cash based. Remember: Index derivatives are cash settled. Individual-stock derivatives can create delivery obligations at expiry.
Hint, shown before you answer in practice mode: Common mistake: Assuming all equity derivatives are cash settled because index derivatives are.
VIII-070mediumregulatory
Q8Under current NSE Clearing rules, the final settlement price for an index futures contract is based on:
Option A. A price chosen by the futures buyer
Why it is wrong: Individual counterparties do not choose the official final settlement price.
Option B. The futures contract’s highest traded price during its life
Why it is wrong: Historical maximum futures price is not the final settlement rule.
Option C. The opening price of the underlying index on the contract’s first trading day
Why it is wrong: The contract’s first-day opening price is unrelated to final settlement.
Option D. The closing price of the relevant underlying index on the last trading day — Correct answer
Answer: D. NSE Clearing states that final settlement price for an index derivative is based on the close price of the relevant underlying index on the last trading day of the contract, unless the relevant authority specifies another method. Remember: Index derivative final settlement references the underlying index close at expiry, not an arbitrary futures trade.
Hint, shown before you answer in practice mode: Common mistake: Using the last traded futures price instead of the official underlying-index settlement reference.
VIII-071mediumregulatory
Q9At expiry, an in-the-money NSE option is automatically exercised under the applicable rules. How are corresponding short positions in the same series assigned?
Option A. Randomly among eligible open short positions in that series — Correct answer
Option B. Only to the oldest short position
Why it is wrong: Assignment is not based solely on which short was opened first.
Option C. Only to the trader with the largest profit
Why it is wrong: Profitability is not the assignment criterion.
Option D. The buyer personally selects the seller to be assigned
Why it is wrong: The exercising buyer does not choose a specific writer.
Answer: A. NSE Clearing’s settlement mechanism provides that in-the-money long option positions are automatically exercised at expiry and are assigned to open short positions in the same series on a random basis. Remember: Exercise creates the long-side right/settlement. Assignment allocates the corresponding obligation to short positions according to clearing rules.
Hint, shown before you answer in practice mode: Common mistake: Thinking exchange-traded option buyers and sellers remain paired with their original counterparty.
VIII-072mediumregulatory
Q10What is the primary purpose of the Core Settlement Guarantee Fund (Core SGF) maintained for a clearing segment?
Option A. Help complete settlement if a clearing member defaults — Correct answer
Option B. Compensate every trader for ordinary losses from market moves
Why it is wrong: It does not reimburse ordinary trading losses.
Option C. Finance listed companies’ dividend payments
Why it is wrong: Dividend payments are corporate obligations, not the purpose of Core SGF.
Option D. Guarantee investors a minimum return on derivative positions
Why it is wrong: It is a settlement guarantee, not an investment-return guarantee.
Answer: A. NSE Clearing’s Core SGF policy states that the fund exists to guarantee settlement in the relevant segment. If a clearing member fails to honour settlement commitments, the Core SGF can be used within the default-management framework so settlement can be completed without disrupting the normal process. Remember: Core SGF protects the settlement process against clearing-member default. It does not insure market P&L.
Hint, shown before you answer in practice mode: Common mistake: Confusing “settlement guarantee” with a guarantee against trading losses.
VIII-073mediumconceptual
Q11A trader sells one NIFTY call for a premium of 220 points. Assume a lot size of 65. Ignoring charges and margin requirements, what gross option premium is receivable from the trade under premium-style settlement?
Option A. ₹3,385
Why it is wrong: This divides rather than multiplies the premium by contract quantity.
Option B. ₹22,000
Why it is wrong: This treats the quoted 220 points as ₹220 per 100 units.
Option C. ₹14,300 — Correct answer
Option D. ₹1,43,000
Why it is wrong: This adds an extra factor of ten.
Answer: C. Gross premium receivable = option premium × lot size = 220 × 65 = ₹14,300. NSE Clearing’s daily premium settlement nets premium payable and receivable positions at the relevant client/member levels. This calculation isolates the gross premium on this one trade as requested. Remember: Option premium cash amount = quoted premium per unit × contract quantity, before charges and any portfolio netting.
Hint, shown before you answer in practice mode: Common mistake: Confusing option premium cash settlement with margin required from an option writer.
VIII-074mediumnumerical
Q12For a normally traded equity futures contract, NSE Clearing currently bases the daily settlement price primarily on:
Option A. The average spot price of the underlying stock over the previous month
Why it is wrong: A previous-month spot average is not the daily futures settlement method.
Option B. Only the price of the first trade of the day in that contract
Why it is wrong: The first trade is not the prescribed daily settlement benchmark.
Option C. Its volume-weighted average price over the last 30 minutes — Correct answer
Option D. The implied volatility of the option at the nearest strike price
Why it is wrong: Option implied volatility is not the primary daily settlement price for a traded futures contract.
Answer: C. NSE Clearing states that the daily settlement price for futures contracts is based on the last 30 minutes volume-weighted average price of that contract across exchanges, or another price as the relevant authority may decide. Separate theoretical-price rules apply for specified illiquid/untraded cases. Remember: Futures MTM uses the clearing corporation’s daily settlement price. For normally traded contracts, NSE Clearing uses a last-30-minute VWAP methodology across exchanges.
Hint, shown before you answer in practice mode: Common mistake: Assuming MTM always uses the final single trade printed before market close.
VIII-075mediumregulatory
Q13A client has an open equity-derivatives position but does not provide the additional margin demanded after the position becomes under-margined. Which statement best reflects the risk-management framework?
Option A. The shortfall must be dealt with, the position may be restricted or closed, and penalties may apply — Correct answer
Option B. The margin shortfall can be ignored until contract expiry if the client promises in writing to pay later
Why it is wrong: Required margins are not deferred merely on a client's promise.
Option C. The exchange must immediately convert the derivative into a cash-market delivery trade
Why it is wrong: A margin shortfall does not automatically convert a derivative into a cash-market delivery trade.
Option D. Only option buyers can ever face a margin shortfall, never futures traders or option writers
Why it is wrong: Futures and short-option positions, among others, can generate margin obligations.
Answer: A. Margins are a core risk-control mechanism, not an optional payment. Where required margin is not met, the member must deal with the deficiency under exchange/clearing-corporation rules. Continued exposure can be restricted or closed and breaches can attract penalties or other action. The exact operational response depends on the applicable rule and member risk policy. Remember: A margin call is an enforceable risk-control requirement. Failure to meet it can lead to restriction, square-off and regulatory/clearing consequences.
Hint, shown before you answer in practice mode: Common mistake: Assuming the initial margin deposited is sufficient for the entire life of the position.
VIII-076mediumregulatory
Q14At one trading member, Client A is net long 10 contracts and Client B is net short 8 contracts in the same futures series. For initial-margin aggregation, which statement reflects NSE Clearing's client-position principle?
Option A. The two clients are fully netted, leaving a single long 2-contract client exposure
Why it is wrong: Cross-client netting would understate the separate client exposures.
Option B. Only the larger client's position, the 10 long contracts, is considered
Why it is wrong: Both clients' positions matter.
Option C. Each client is netted separately and the results are added, with no offset between clients — Correct answer
Option D. Client positions are ignored whenever the member has an opposite proprietary position
Why it is wrong: Proprietary positions do not simply erase client-margin requirements.
Answer: C. NSE Clearing states that client positions are netted at the level of each individual client and then grossed across clients at the trading/clearing-member level, without set-off between different clients. Proprietary and client positions also do not simply offset each other for this purpose. Remember: Margin aggregation protects against the fact that different clients are separate risk owners.
Hint, shown before you answer in practice mode: Common mistake: Netting opposite positions belonging to different clients.
VIII-143hardapplication
Q15Under NSE Clearing's current equity-derivatives liquid-asset framework, at least what proportion of effective/liquid deposits is required to be in the cash component?
Option A. 10%
Why it is wrong: 10% is below the stated minimum.
Option B. 25%
Why it is wrong: 25% is below the stated minimum.
Option C. 100%
Why it is wrong: The framework permits eligible non-cash collateral as well.
Option D. 50% — Correct answer
Answer: D. NSE Clearing's current framework requires at least 50% of effective/liquid deposits to be in the cash component. The cash component includes the forms recognised by the clearing corporation for this purpose. The balance can consist of eligible non-cash collateral subject to applicable rules and haircuts. Remember: Collateral composition matters in addition to total collateral value.
Hint, shown before you answer in practice mode: Common mistake: Assuming any mix of cash and securities is acceptable as long as the total rupee amount is sufficient.
VIII-144mediumregulatory
Q16What is a key idea behind interoperability among clearing corporations in the Indian securities-market framework?
Option A. Eligible members can choose which clearing corporation clears their trades — Correct answer
Option B. Every investor must become a direct clearing member of each exchange
Why it is wrong: Retail investors do not become direct clearing members merely because of interoperability.
Option C. All clearing corporations are merged into one legal entity for the whole market
Why it is wrong: The clearing corporations remain separate entities.
Option D. Interoperability removes the need for any margins on trades cleared elsewhere
Why it is wrong: Risk-management and margin requirements continue.
Answer: A. Interoperability was designed to allow clearing through a chosen clearing corporation within the prescribed framework even when trades originate on participating exchanges, improving flexibility and potentially allowing consolidation of clearing arrangements. It does not abolish margins or merge the clearing corporations. Remember: Interoperability links clearing access. It does not eliminate independent clearing corporations or risk controls.
Hint, shown before you answer in practice mode: Common mistake: Interpreting 'interoperable' as 'all clearing corporations become one'.
VIII-145mediumconceptual
Clearing, Settlement and Risk Management: common questions
How many practice questions are there on Clearing, Settlement and Risk Management?
16 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 11 practice topics for NISM Series VIII, which has 150 questions in total.
Are these real NISM Series VIII questions on Clearing, Settlement and Risk Management?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
How much of the NISM Series VIII exam is Clearing, Settlement and Risk Management?
NISM's published syllabus outline gives it 13 of the paper's 100 marks, or 13% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: Unit 7: Introduction to Clearing and Settlement system
Does negative marking apply to NISM Series VIII?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
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