Page 173 - DCOM510_FINANCIAL_DERIVATIVES

Financial Derivatives

Notes of the cease of entry and exit, and narrow margins which results in improved liquidity and
reduced transaction costs.

11.1 Clearing Entities in the F&O Segment

A Clearing Member (CM) of NSCCL has the responsibility of clearing and settlement of all
deals executed by Trading Members (TM) on NSE, who clear and settle such deals through
entities. Clearing and settlement activities in the F&O segment are undertaken by NSCCL with
the help of the following entities:
(a) Clearing Members
(b) Clearing Banks

Let us discuss them in detail.

11.1.1 Clearing Members

In the F&O segment, some members, called self clearing members, clear and settle their trades
executed by them only either on their own account or on account of their clients. Some others
called trading member-cum-clearing member, clear and settle their own trades as well as trades
of other trading members (TMs). Besides, there is a special category of members, called
professional clearing members (PCM) who clear and settle trades executed by TMs. The members
clearing their own trades and trades of others, and the PCMs are required to bring in additional
security deposits in respect of every TM whose trades they undertake to clear and settle. Primarily,
the CM performs the following functions:

1. Clearing: Computing obligations of all his TM’s i.e. determining positions to settle.
2. Settlement: Performing actual settlement. Only funds settlement is allowed at present in
Index as well as Stock futures and options contracts.

3. Risk Management: Setting position limits based on upfront deposits margins for each TM
and monitoring positions on a continuous basis.
Types of Clearing Members: The types of clearing members are:

Trading Member Clearing Member (TM-CM): A Clearing Member who is also a TM. Such
CMs may clear and settle their own proprietary trades, their clients’ trades as well as
trades of other TM’s.

Professional Clearing Member (PCM): A CM who is not a TM. Typically banks or custodians
could become a PCM and clear and settle for TM’s.

Self Clearing Member (SCM): A Clearing Member who is also a TM. Such CMs may clear and
settle only their own proprietary trades and their clients’ trades but cannot clear and settle
trades of other TM’s.
11.1.2 Clearing Banks

Funds settlement takes place through clearing banks. For the purpose of settlement all clearing
members are required to open a separate bank account with NSCCL designated clearing bank
for F&O segment.

Did u know? NSCCL has empanelled 13 clearing banks namely Axis Bank Ltd., Bank of
India, Canara Bank, Citibank N.A, HDFC Bank, Hongkong & Shanghai Banking Corporation

168 LOVELY PROFESSIONAL UNIVERSITY