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Unit study guide · NISM Series VII

Clearing Process

17 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

After a centrally cleared trade is novated, which entity stands as the counterparty to the clearing obligations on each side?

The clearing corporation performs the central-counterparty role being tested. Novation places the central counterparty between the original clearing sides. The clearing corporation therefore stands on the opposite side of the relevant obligations. This does not mean that a retail client ceases to have a separate relationship with its broker. Remember: Distinguish the entity assuming the clearing-counterparty role from entities processing assets or money.

Hint Common mistake: Assuming that the institution moving the funds must also be the trade counterparty.

VII-022

From the practice bank · 2

What does a clearing bank do in exchange-trade funds settlement?

This identifies the money movements performed through clearing accounts. Funds obligations require money to move through designated clearing accounts. The clearing bank processes those debits and credits under clearing-corporation instructions. Determining obligations and moving securities are separate functions. Remember: Associate the clearing bank with cash movements under settlement instructions.

Hint Common mistake: Treating every institution with clearing in its name as performing the same job.

VII-023

From the practice bank · 3

An eligible trading member executes a trade on NSE under interoperability. Which route applies for risk management, clearing and settlement?

This follows the designation mechanism stated in the official circular. The executing exchange and the designated clearing arrangement are distinct. The inspected NSE circular routes the trade to the designated clearing corporation of the clearing member selected by the trading member. The route covers risk management, clearing and settlement. Remember: Distinguish the execution venue from the member's designated clearing arrangement.

Hint Common mistake: Assuming that execution on one exchange fixes the clearing corporation regardless of an eligible member's arrangement.

VII-024

From the practice bank · 4

In the same normal netted settlement, one client buys 800 shares and sells 500 shares of the same security. Ignoring other trades, what is the client's net securities obligation?

The buy quantity exceeds the sell quantity by 300, producing a net receipt. The purchase creates a claim to receive 800 shares. The sale creates an obligation to deliver 500 shares. Net receipt = 800 − 500 = 300 shares. This is a quantity obligation, not a rupee profit or loss. Remember: For a netted securities position, subtract sells from buys and keep the sign.

Hint Common mistake: Adding buy and sell quantities or netting across different clients or settlements.

VII-025

From the practice bank · 5

For eligible trades in NSE Clearing’s optional T+0 settlement, by what time are settlement obligations determined on T day?

Obligations are determined by 2:30 pm on the trade day. NSE Clearing specifies 2:30 pm on T day for determining optional T+0 obligations. The trade-closing and securities-pay-in stages have different deadlines. A deadline for one stage must not be substituted for another. Remember: Identify the process stage before selecting a time.

Hint Common mistake: Remembering a T+0 time without remembering what it controls.

VII-026

From the practice bank · 6

In a trade-for-trade category settled on a gross basis, one client buys 120 shares at ₹250 and sells 80 shares at ₹255 in the same settlement. Ignoring charges, what are the funds obligations?

This answer retains the complete purchase payment and sale receipt. Purchase payable = 120 × ₹250 = ₹30,000. Sale receivable = 80 × ₹255 = ₹20,400. The specified gross-settlement category retains both amounts. The ₹9,600 difference is not a substitute for those gross obligations. Remember: Determine the settlement category before netting opposite trades.

Hint Common mistake: Applying normal net-settlement arithmetic automatically to trade-for-trade obligations.

VII-064

From the practice bank · 7

In one netted settlement, client R buys 300 shares at ₹400 and sells 100 shares of the same company at ₹410. Ignoring charges, what is R's net funds obligation?

Net funds use each trade's own price. R pays 300 × ₹400 = ₹1,20,000 and receives 100 × ₹410 = ₹41,000. Net payable = ₹79,000. Remember: Net trade consideration using actual execution prices.

Hint Common mistake: Using the valuation price when calculating settlement cash.

VII-071

From the practice bank · 8

In one netted settlement, a member's trades in share Alpha are: client R buys 300 and sells 100, client S sells 150, and the member's own account buys 50. In share Beta, client S buys 200 and the own account sells 50. What is the member's net securities obligation?

Net each share separately. Alpha: 200 − 150 + 50 = 100 to receive. Beta: 200 − 50 = 150 to receive. Different shares are never added together. Remember: Net within an ISIN, not across unrelated securities.

Hint Common mistake: Treating one share of one company as interchangeable with one share of another.

VII-072

From the practice bank · 9

A trading member assigns an executed cash-market trade to a custodian. The custodian rejects it under NSE Clearing’s process. Where is the settlement obligation assigned?

Custodial rejection returns the obligation to the trading member rather than cancelling the exchange trade. The trade has already been executed. The question concerns who will settle it. NSE Clearing assigns a rejected custodial trade back to the trading member for settlement obligations. Remember: A rejected custodial assignment does not make the executed trade disappear.

Hint Common mistake: Confusing a rejected clearing assignment with cancellation of execution.

VII-086

From the practice bank · 10

Trading Member A executes an F&O trade for a custodial participant (CP). A clears through CM X, but the CP’s designated clearing member is CM Y. Which entity confirms the CP trade under the specified process?

The confirming entity is the clearing member of the custodial participant. Identify the clearing member designated for the CP, not merely the one used by the executing trading member. Here that entity is CM Y. NSE Clearing’s CP process assigns confirmation to the clearing member of the CP. Remember: For CP confirmation, follow the CP’s clearing member.

Hint Common mistake: Automatically choosing the clearing member of the broker that executed the trade.

VII-087

From the practice bank · 11

A client buys 2 index call contracts at a premium of ₹140, sells 1 call at ₹60 and sells 1 put at ₹90. Premiums are per index unit and each contract is 40 units. What is the client's net premium obligation?

Premium is paid on options bought and received on options sold. Paid: 2 × ₹140 × 40 = ₹11,200. Received: (₹60 + ₹90) × 40 = ₹6,000. Net = ₹5,200 to pay. Remember: Convert per-unit premiums to contract amounts, then net payments against receipts.

Hint Common mistake: Ignoring the number of bought contracts or treating sale premiums as payments.

VII-096

From the practice bank · 12

A client buys two near-month futures contracts and sells two next-month futures contracts on the same index. Both remain open. How should the position record show them?

This answer preserves the side, quantity and of each open contract. The near-month purchase and next-month sale relate to different contracts. They remain separate open positions. Any possible spread-margin treatment does not turn them into a completed offset in one contract. Remember: Only matching contract identities can be treated as an offsetting close in the position record.

Hint Common mistake: Equating a calendar spread with having no open position.

VII-112

From the practice bank · 13

A client buys 3 index futures contracts and later sells 1 of them to close. Each contract is 25 index units. How many index units does the remaining long position represent?

Two contracts stay open after one is sold. 2 × 25 = 50 units. Remember: Distinguish gross trading activity from net open quantity within the same contract.

Hint Common mistake: Adding buys and sells when the question asks for the open position.

VII-123

From the practice bank · 14

A client authenticates an eDIS for 100 shares in settlement S1 on date D1. Another 100-share delivery of the same ISIN is due in S2 on a different date. Does the S1 authentication alone authorise S2?

The second settlement needs a valid authorisation covering it. The second obligation has a different settlement number and date. CDSL’s eDIS description requires authorisation for each single settlement number and date. Matching the security and quantity does not convert the earlier eDIS into a standing permission. The question concerns reuse of S1 authentication. It does not exclude other valid instruction mechanisms that may separately authorise S2. Remember: Check settlement identity as well as security and quantity in an eDIS instruction.

Hint Common mistake: Reusing a prior settlement’s authentication because the next delivery looks similar.

VII-137

From the practice bank · 15

A client wants to confirm that purchased shares were actually credited to the demat account. Which record most directly establishes that credit?

This answer directly records the credit into the relevant demat account. The fact to establish is whether the demat account received the securities. The depository transaction statement records the account credit. The security identifier, quantity and account must match the expected receipt. An order acknowledgement, payment or executed-trade confirmation does not by itself prove that this later credit was posted. Remember: Verify securities receipt in the depository record, not only in trading or banking records.

Hint Common mistake: Treating evidence of payment as proof of securities delivery.

VII-138

From the practice bank · 16

In one netted settlement of one share, client A buys 800 and sells 200, B buys 100 and sells 500, C buys 100 and sells 350, and D buys 200 and sells 50. How many shares must be delivered to the clearing corporation for the clients' net sales?

Net each client first. B is a net seller of 400 and C of 250. A and D are net buyers. Delivery for net sales = 400 + 250 = 650 shares. Remember: Net within each client first, then add the client net-sell quantities for gross pay-in.

Hint Common mistake: Treating the member’s net-receipt position as eliminating the gross client delivery requirement.

VII-146

From the practice bank · 17

In one netted settlement of one share, client A buys 800 and sells 200, B buys 100 and sells 500, C buys 100 and sells 350, and D buys 200 and sells 50. What are the total shares due to net-buying clients, and the member's overall net shares to receive?

A is a net buyer of 600 and D of 150, so net buyers are due 750. All buys total 1,200 and all sales 1,100, so the member nets 100 to receive. Remember: Reconcile client net-buy entitlements and client net-sell deliveries before reporting a member-level net figure.

Hint Common mistake: Equating the member’s small net receipt with the entire quantity owed to its buying clients.

VII-147

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