Question

How does NSCCL ensure efficient settlement of trades?

• A. By increasing trading fees
• B. Through real-time data transfer
• C. By managing counterparty risks
• D. Using physical delivery methods

Hint:

NSCCL’s role as central counterparty manages counterparty risks to guarantee timely trade settlement.

Answer 1

The Correct Option is C

The National Securities Clearing Corporation Limited (NSCCL) ensures efficient settlement of trades primarily by managing counterparty risks. Counterparty risk is the risk that one party in the transaction may default on its obligations. NSCCL acts as a central counterparty between buyers and sellers, guaranteeing the completion of trades even if one party fails to fulfill their commitment. Key methods used by NSCCL include:

Netting of obligations to reduce the number and value of settlements.
Margin requirements to ensure members have sufficient funds or securities.
Settlement guarantee fund to cover defaults.
This risk management system enhances market stability and trust, allowing settlements to occur smoothly and on time.
Explanation of Other Options:

(A) Increasing trading fees: This does not directly impact settlement efficiency.
(B) Real-time data transfer: Useful for communication but not the main method for settlement efficiency.
(D) Physical delivery methods: Modern settlements are done electronically to ensure speed and accuracy.
Thus, option (C) best describes NSCCL’s method.