Trading Mechanism on NSE – Clearing & Settlement System
Trading is easy. Getting money is the hard part. That's "Settlement".
1. The Clearing Corporation (NCL)
NSE Clearing Limited (NCL) acts as the central counterparty.
- Guarantee: It guarantees settlement even if the Broker defaults.
- Novation: It becomes the Buyer to every Seller, and Seller to every Buyer.
2. Settlement Types
A. Daily MTM Settlement (Mark-to-Market)
- When: Every day at end of trading.
- What: Profits are credited, Losses are debited from the margin account.
- Example: You bought Nifty at 100. Closes at 102. NCL credits ₹2 to your account today.
B. Final Settlement
- When: On Expiry Day (Last Thursday).
- What: The contract is closed. Final profit/loss is paid in cash.
3. Diagram: The Clearing Process
Loading diagram…
4. Exam Notes: Writing the Answer
Question: "Explain the Clearing and Settlement process of Futures." (10 Marks)
Answering Strategy:
- Entity: Mention NSCCL / NCL.
- Novation: Explain how it "Interposes" itself between parties.
- MTM: Explain Daily Settlement (Mark-to-Market) – critical concept.
Summary
- Cash Settled: In India, almost all Index derivatives are Cash Settled. No one gives you a basket of Nifty stocks.
- Safety: The Clearing Corp is the reason we sleep peacefully.
Quiz Time! 🎯
Loading quiz…