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Difficulty: EasyDepositories, Clearing Corporations, and Settlement Entities

A broker-dealer completes a transaction involving corporate shares on an exchange. Prior to final settlement, which entity serves as the central counterparty responsible for clearing the trade, netting obligations, and guaranteeing completion between the buyer and seller broker-dealers?

  1. National Securities Clearing Corporation (NSCC)Answer
  2. B
    Depository Trust Company (DTC)
  3. C
    Options Clearing Corporation (OCC)
  4. D
    Securities and Exchange Commission (SEC)

Answer

The National Securities Clearing Corporation (NSCC) serves as the central counterparty responsible for clearing, netting, and guaranteeing trade completion between broker-dealers.
The National Securities Clearing Corporation (NSCC) is a clearing agency that acts as the central counterparty for corporate stock trades, performing trade comparison, netting, and settlement guarantees for buying and selling broker-dealers.

Step-by-Step Solution

1
Identify the primary role requested in the scenario.
The question asks for the entity responsible for clearing, trade netting, and acting as central counterparty for corporate equity trades.
Different financial entities perform specialized infrastructure roles in capital markets.
2
Differentiate between clearing, custody/depository, options clearing, and regulatory entities.
The National Securities Clearing Corporation (NSCC) clears equity trades and nets obligations. The Depository Trust Company (DTC) handles custody and book-entry movement, the Options Clearing Corporation (OCC) handles options, and the Securities and Exchange Commission (SEC) provides regulatory oversight.
Matching each entity to its specific clearing or depository mandate identifies the correct answer.

Key Concept

Clearing Corporations vs. Central Securities Depositories
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Topics

Depositories, Clearing Corporations, and Settlement Entities

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