Page 185 - DCOM510_FINANCIAL_DERIVATIVES

Financial Derivatives

Notes 11.5 Keywords

Clearing Bank: A clearing bank is a banking institution that is a member of a national check
clearing network that has the ability to approve or clear checks for payment, even if those checks
are not written on accounts associated with that bank.
Clearing Corporation: Clearing Corporation for the purpose of these regulations means the
Futures & Options Segment of the National Securities Clearing Corporation Limited or any
other body which may be identified by the F&O Segment of the Exchange for the purpose of
performing the clearing and settlement of Derivatives contracts.
Clearing Member: It implies a member of the clearing Corporation. It includes all categories of
Clearing Members as may be admitted to the Futures & Options Segment of the Clearing
Corporation.
Exercise: Exercise means the invocation of right, in accordance with and subject to Rules, Byelaws
and Regulations of Exchange by the option holder.
Exercise process: The period during which an option is exercisable depends on the style of the
option.
Interim exercise settlement: Interim exercise settlement takes place only for option contracts on
securities.

Mark-to-market: Mark-to-market or fair value accounting refers to accounting for the “fair
value” of an asset or liability based on the current market price, or for similar assets and liabilities,
or based on another objectively assessed “fair” value.

Professional Clearing Members: They clear and settle trades executed by TMs.
Self 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.
Trading Members: It refers to a member of the BSE/NSE who is authorised to place orders in the
Capital Market System.

11.6 Review Questions

1. Write about clearing members.
2. Write down the functions of clearing members.
3. What are the types of clearing members?

4. Write about clearing banks.
5. Briefly explain about the clearing mechanism.
6. Discuss the settlement of futures & options contracts.

7. What is marked-to-market settlement?
8. Describe the special facility for settlement of institutional deals.
9. Explain the need and operation of margins in relation to the futures contracts, explaining
the concept of marking to market in this context.
10. Explain the different types of orders which may be placed in buying a derivative contract?

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