Page 172 - DCOM510_FINANCIAL_DERIVATIVES

Anand Thakur, Lovely Professional University
Unit 11: Clearing and Settlement

Unit 11: Clearing and Settlement Notes

CONTENTS
Objectives

Introduction
11.1 Clearing Entities in the F&O Segment
11.1.1 Clearing Members
11.1.2 Clearing Banks
11.2 Clearing Mechanism

11.3 Settlement Mechanism
11.3.1 Settlement of Futures Contracts
11.3.2 Settlement of Options Contracts
11.4 Summary

11.5 Keywords
11.6 Review Questions
11.7 Further Readings

Objectives

After studying this unit, you should be able to:

 Explain the entities in clearing and settlement activities in the F&O segment;
 Discuss the settlement mechanism in the F&O segment;
 Describe the settlement of futures and options contracts;

 Get an overview of special facility for settlement of institutional deals.
Introduction

In the previous unit, you have studied about the trader workstation and market watch window.
We also discussed about the ‘symbols’ window, ‘popup prices’ window, ticks, trading in market
watch and inquiry window, placing orders on the trading system. This unit will help you to
understand entities in clearing and settlement activities in the F&O segment and settlement
mechanism. We will also learn about the clearing mechanism essentially involves working out
open positions and obligations of clearing members. The various sections and sub-section of
this unit will also explain settlement of futures contracts and settlement of options contracts.
Further, we will end up the unit with discussion on special facility for settlement of institutional
deals. To make the learning easier, we will take the help of globally recognised best practices.
National Securities Clearing Corporation Limited (NSCCL) undertakes clearing and settlement
of all trades executed on the futures and options (F&O) segment of the NSE. It also acts as legal
counterparty to all trades on the F&O segment and guarantees their financial settlement. In
order to encourage an institutional market where large volume trades come up for settlement in
jumbo lots, two exclusive additional market segments, the institutional lot segment and trade-
for-trade segment have been set up. NSE has an order driven system, which allows members to
undertake jobbing in securities of their choice. Several members undertake jobbing on account

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